CASES IN THE NEWS

We periodically update this section with a brief highlight of recent and noteworthy law pertinent to our practice areas:

Plaintiff Martin owns a 240 acre almond orchard that shares a 1,300 foot boundary with Defendant Van Bergen. With Van Bergen's consent, Martin constructed a 1,300 foot long deer fence replacing a 60+ year old cattle fence along what both neighbors thought with certainty was the actual coterminus boundary line. Later, surveys were done that showed that a portion of Martin's almond orchard was actually encroacing on Van Bergen's land. The amount of encroachment was significant, amounting to about 8-10% of the almond crop yield.
Martin's arguments to the court that the agreed upon fence was the agreed boundary based on mutual mistake and conflicting surveys was unavailing. The Appeals Court, citing Supreme Court precedence, stated that in order for the fence to be the agreed boundary, it must have been built to settle a dispute about the location of the actual boundary. And where a survey can accurately locate the true boundary from the description in the recorded deed, public policy goes against the doctrine of agreed-boundary in favor of certainty in recorded instruments and surveys.
The Court reaffirmed the requirements of proof necessary to establish a title by agreed boundary: [1] an uncertainty as to the true boundary line, [2] an agreement between the coterminous owners fixing the line, and [3] acceptance and acquiescence in the line so fixed for a period equal to the statute of limitations or under such circumstances that substantial loss would be caused by a change of its position. The Court observed that numerous Appellate decisions have held that the doctrine should not be applied broadly to resolve boundary disputes where there is no evidence that the neighboring owners entered into an agreement to resolve a boundary dispute and where the true boundary is ascertainable from the legal description set forth in an existing deed or survey.
The Appeals Court affirmed judgement against Martin and quieted title in favor of Van Bergen according to the survey.
Read the Martin decision: Click here

Borrowers under deed of trust brought action against Federal National Mortgage Association (Fannie Mae) to set aside the trustee's sale of their home, to void or cancel the trustee's deed upon sale, and for violation of the statute governing assignment of power of sale.
In the case of Herrera v. Federal National Mortgage Association filed May 17, 2012, the Court held that a lender may designate an entity such as Mortgage Electronic Registration Systems, Inc. (MERS) as nominee beneficiary of a deed of trust, which gives the entity the right to initiate foreclosure. Such entity may assign all of its rights and interests of the lender beneficiary to a different entity so that the subsequent assignee becomes the beneficary's nominee with all of the interests and rights of the original lender beneficiary including the right to a substition of trustee to initiate foreclosure. The Court reached its opinion notwithstanding that language of the original Deed of Trust suggesting that only the original lender could do so. The Court further held that nothing in the comprehensive statutory scheme governing nonjudicial foreclosures (Civil Code §§ 2924 through 2924l) contains a requirement that an assignment of a Deed of Trust must be acknowledged and recorded before the foreclosure sale.
Read the Herrara decision: Click here

Where a real estate broker represents a seller only, if a residential buyer has a cause of action for the broker's breach of statutory duty under Civil Code section 2079 (to make a reasonably competent and diligent visual inspection of the property offered for sale and make a disclosure to the buyer of all facts materially affecting the value or desireability of the property that the inspection revealed), the aggreived buyer must file the lawsuit within 2 years of the close of escrow or occupancy, whichever is earlier, pursuant to Civil Code 2079.4.

In the case of William L. Lyon Assoc. v. Superior Court of Placer County (Ted Henley Real Party in interest) (Cal. Ct. App., Apr. 12, 2012) 2012 WL 1232114, the Court held that the 2 year limitations of section 2079.4 did not apply to a dual agent broker representing both buyer and seller, and the broker's contractual 2-year limitations was subject to the discovery rule.

Lyon is a real estate broker who represented the buyer, Henley, and the sellers, as a dual agent. In addition, Lyon had an exclusive buyer-broker contract with Henley that contained a limitations provision where any legal action must be brought within 2 years.

About a year after Henley closed escrow, he started to notice the new exterior paint blistering in spots and about 2 years after close of escrow the paint began to peel, exposing effloresence coming from the walls, indicating an internal moisture problem, undisclosed to Henley at the time of sale. After unsuccessful attempts to mediate, and after discovering photographs of the house taken by Lyon's agent when she took the listing, showing the painting in progress and clearly showing effloresence on the exterior walls, Henley filed a complaint abut 3 years after the close of escrow.

The Court held that the 2-year statute of limitations of Civil Code 2079.4 did not apply in Henley's action against Lyon because 2079.4 applied only to actions taken by a buyer against the seller's agent, and not by the buyer against a dual agent who also represents the buyer.

Because material facts regarding the effloresence, and the underlying moisture problem, were not reasonably capable of being discovered by Henley until after the paint began peeling, and Henley's real estate agent was culpable in hiding the facts, the Court held that the 2-year contract limitations in the broker-buyer agreement was subject to the "delayed discovery" rule and did not begin to run until Henley discovered the problem, thus the complaint was timely.
Read the Lyon decision: Click here

The authority of a lender's (beneficiary's) nominee (e.g. MERS) to initiate nonjudicial foreclosure proceedings is beyond judicial challenge notwithstanding the fact that the nominee merely holds legal title to the deed of trust and is not the owner of the underlying promissory note. [Gomes v. Countrywide Home Loans, Inc.(2011) 192 CA4th 1149, 1154]
Read the Gomes decision: Click here

The lender's nominee may invoke the "tender" rule against any defaulting borrower who challenges the proceedings (i.e., require the borrower to make an unconditional offer to fully perform with intent to extinguish the obligation). [Ferguson v. Avelo Mortg., LLC (2011) 195 CA4th 1618, 1626, 1627]

The lender's nominee has the authority to assign the lender's interest in both the trust deed and the underlying note, thereby empowering the assignee to initiate foreclosure proceedings. [Fontenot v. Wells Fargo Bank, N.A. (2011) 198 CA4th 256]

Short sale transaction antideficiency rule: This rule bars deficiency judgments in short sale transactions involving residential one-to-four unit properties. [CCP 580e (amended 2011)]

A seller's broker has an affirmative obligation to conduct a reasonably competent and diligent inspection of residential property listed for sale and disclose to prospective purchasers all facts materially affecting the property's value or desirability that such investigation reveals. This obligation includes disclosing significant liens and encumbrances that may affect free transferability of the property. [See Holmes v. Summer (2010) 188 CA4th 1510, 1521, 1522]

Negligence liability arising from failure to obtain seller's permission to disclose confidential information reflecting substantial risk of escrow not closing: A seller's broker's broad obligation to act fairly toward all parties requires him or her to obtain the seller's permission to disclose confidential information reflecting a substantial risk that escrow will not close (e.g., a substantial risk that overencumbered residential property cannot be freely transferred). [See Holmes v. Summer (2010) 188 CA4th 1510, 1526]

Last year, the California Court of Appeals in Mabry v. Superior Court (2010) 185 Cal.App.4th 208, held that California Civil Code Section 2923.5 provided a borrower with a private right of action to stop the foreclosure process if the lender has not complied with the notice requirements of Section 2923.5, which prohibits filing of a Notice of Default for 30 days after the lender has contacted, or made certain attempts to contact, the borrower to assess the borrowers financial situation and discuss options to avoid foreclosure. The Appellate Court in Mabry also expressly held that 2923.5 was not preempted by Federal law.

In stark contrast to the Mabry decision, Federal courts hold that Section 2923.5 of California Civil Code is preempted by Federal law. In a recent case, Sato v. Wachovia Mortg., FSB 2011 WL 2784567, 1 (N.D.Cal. July 13, 2011), the U.S. District Court disregarded the Mabry decision as "unpersuasive in its reasoning" and held instead that a claim under section 2923.5 is preempted by Federal law - the Homeowners Loan Act ("HOLA"). HOLA is a broad ranging raft of Federal statutes controlling the processing and servicing of mortgages. The Court in Sato held that "servicing" impliedly includes foreclosure actions, and cited a concurring holding from the Central District last year: Taguinod v. World Savings Bank, No. CV 10-7864-SVW, 2010 U.S. Dist. LEXIS 127677, (C.D.Cal. Dec. 2, 2010) - holding that Section 2923.5 is preempted by HOLA.

The litigation lesson here: Forum Shopping. Plaintiff borrowers seeking to enjoin foreclosures based on alleged violations of Section 2923.5 need to stay out of Federal court, and defendant lenders accused of violating 2923.5 should remove the state court case to Federal court.

Read the Sato decision: Click here
Read the Mabry opinion: Click here

In the case of Jose Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, the Court of Appeals, in review of a case alleging wrongful foreclosure, held that a private corporation (i.e., MERS - Mortgage Electronic Registry System) that administers a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans may initiate a foreclosure as the nominee, or agent, of the noteholder.

In May, 2009, Gomes filed a lawsuit against Countrywide, MERS and ReconTrust, alleging several causes of action. The only causes of action on appeal were (1) Wrongful Foreclosure and (2) Declaratory Relief. The gist of it: Gomes contended that MERS did not have authorization to initiate the foreclosure.

The Court in Gomes held that Civil Code section 2924(a)(1), which expressly permits a "trustee, mortgagee, or beneficiary, or any of their authorized agents" to initiate foreclosure, applied to MERS as an authorized agent, and that the non-judicial foreclosure statutes makes no provision for a private cause of action to determine whether the initiating party is authorized to begin non judicial foreclosure proceedings (Trustee Sale).

The Court further held that because of the exhaustive nature of California's nonjudicial foreclosure scheme, as set forth in Civil Code sections 2924-2924k, California appellate courts have rightfully refused to read any additional requirements into the nonjudicial foreclosure statute.

Read the full opinion: Click here
Read the MetNews article here: Click here

Prohibition re accepting preperformance compensation, etc.: It is illegal in California for anyone, including attorneys and real estate licensees, to (i) demand or receive advance fees or any other type of preperformance compensation; (ii) require security as collateral for compensation; or (iii) take a power of attorney from the borrower for any purpose in connection with a residential mortgage loan modification or other form of residential mortgage loan forbearance. [Bus.& Prof.Code 10085.6; Civ.Code 2944.7]

Preliminary written disclosure requirement: Before entering into any fee agreement with the borrower, a real estate licensee, or attorney, who renders compensable services in connection with a residential mortgage loan modification or other form of residential mortgage loan forbearance must provide his or her client with a statutorily-prescribed written disclosure. [Bus.& Prof.Code 10147.6(b),(c); Civ.Code 2944.6(b)(c)]

Generally, brokers earn their commissions once their principals enter into a binding contract for purchase meeting the terms specified in the brokerage contract, regardless whether the sale is consummated. Thus, a buyer's obligation to pay its broker's commission became fixed at the time the buyer entered a purchase agreement with the seller, not when escrow closed. [RC Royal Develop. & Realty Corp. v. Standard Pac. Corp. (2009) 177 CA4th 1410]

Read the full opinion: Click here

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A prescriptive easement arises in much the same way that one may acquire title to real property by adverse possession. The "open and notorious" element, combined with others, ensures the owner of encroached property has notice of the adverse use and sufficient time to prevent that use from ripening into a prescriptive easement. [Nielsen v. Gibson (2009) 178 CA4th 318]

Read the full opinion: Click here

Invalid penalty distinguished: During a period of rising property values, a "nonrefundable deposit" provision in a real property purchase agreement, even if construed as a liquidated damages provision, constitutes an invalid forfeiture. [Kuish v. Smith (2010) 181 CA4th 1419]

Formality requirements: A nonrefundable deposit provision in a real property purchase agreement could not be construed as a liquidated damages provision because, among other things, it failed to satisfy the signature requirement of Civ.Code 1677 . [Kuish v. Smith, supra, at 1429]
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Divorce debt continued to exist even though note had expired under MRTA and deed was no longer enforceable. A dissolution of marriage debt evidenced by a note and secured by a deed of trust continued to exist even though the note had expired under and deed was no longer enforceable. In the initial dissolution of marriage action, the former husband was ordered to give the former wife a note for $335,000, secured by deeds of trust, as part of the equalization of community property. The judgment required the husband to make monthly payments for five years, at which point the balance was due. However, nearly 20 years after the date of that judgment, the balance remained unpaid. Noting that, pursuant to the Marketable Record Title Act (MRTA), a deed of trust, or other instrument that creates a security interest of record in real property to secure a debt expires 10 years from the final maturity date when such a date is ascertainable, the court held that the note had expired and the deed was no longer enforceable. However, pursuant to the Family Code, the underlying debt continued to exist, and the husband was still obligated to satisfy the remainder of the family law judgment, with interest. The issue was one of first impression in the state. [Schelb v. Stein, (2010) 190 Cal.App.4th 1440]
Read the full opinion: Click here

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Recordation of notice of trustee's sale: A written notice of a trustee's sale now must be recorded with the county recorder of the county where the property (or any part thereof) is located at least 20 days before the date of sale. [Civ.Code 2924f (b)(1) (amended 2009)]

Title to highest bidder: A trustee's sale normally is deemed complete when the auctioneer accepts the final bid, even though the trustee's deed is not given to the purchaser until a subsequent date. [Millennium Rock Mortg., Inc. v. T.D. Service Co. (2009) 179 CA4th 804]

Debt and security interest extinguished by full credit bid; no right to insurance proceeds for prepurchase damage: A full credit bid at a foreclosure sale establishes the value of the property, extinguishes the lien and precludes the lender from pursuing any other remedy based on diminution of the property's value. Thus, a trustee/mortgagee was not entitled to insurance proceeds for prepurchase damage to a property bought at public auction once the trustee foreclosed and made a successful full credit bid. [Washington Mut. Bank v. Jacoby (2009) 180 CA4th 639]

Circumstances supporting avoidance of trustee's sale:
Inadequate sale price coupled with procedural irregularity: A foreclosure sale may be avoided where an inadequate sale price is coupled with a procedural irregularity that contributed to the inadequate price or otherwise injured the trustor. For example, a trustee's sale was voidable at the trustee's option where the auctioneer mistakenly opened bidding with a credit bid from a different foreclosure that was only a fraction of what was actually owed. [Millennium Rock Mortg., Inc. v. T.D. Service Co. (2009) 179 CA4th 804]

Breach of lender's promise to postpone sale: A promissory estoppel claim may lie against a lender who breaches its promise to postpone a foreclosure sale. For example, borrowers who, in reliance on their lender's promise to delay foreclosure, procured a high cost, high interest loan by using other property they owned as security, presented sufficient evidence of their detrimental reliance on the lender's promise to support a promissory estoppel claim. (However, the loan proceeds were received too late to invalidate the foreclosure sale). [Garcia v. World Savings, FSB (2010) 183 CA4th 1031]
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Criminal prosecution: Any "person" (i.e., individual, partnership, firm, association, corporation, limited liability company or other legal entity) who, among other things, deliberately makes any misstatement, misrepresentation or omission during the mortgage lending process, with the intention that it be relied on by a mortgage lender, borrower or any other party to the mortgage lending process, is guilty of mortgage fraud. An offense involving mortgage fraud is a felony, punishable by up to one year imprisonment. [Pen.Code 532(f) (added 2009)]
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Overcharges not prohibited: Mere overcharges do not violate RESPA, which bars giving or accepting any portion, split or percentage of a charge for real estate settlement services unless those services are actually performed. Thus, an $800 underwriting fee charged in exchange for settlement services did not violate RESPA. [Martinez v. Wells Fargo Home Mortg., Inc. (9th Cir. 2010) 598 F3d 549]
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