Provisional Remedies in a Wave of Foreclosures
By Matt Clarke, February 2011
According to RealtyTrac (www.realtytrac.com), one in every two hundred California housing units received a foreclosure notice in January 2011. The hardest hit areas are in the middle of the state, starting in Riverside County, and northward through San Bernardino County, Kern County, Tulare, Fresno, Stanislaus, San Joaquin, Sacramento and Solano Counties. RealtyTrac reported that one in every two hundred eighty-nine housing units Santa Barbara County received a foreclosure notice, with an average foreclosure sale price of $289,095. The areas in Santa Barbara County with the most foreclosures per housing unit are Lompoc, Santa Maria, Los Olivos, Guadalupe, and New Cuyama.
With this wave of foreclosures, it is likely that many Santa Barbara County practitioners receive numerous calls each week from individuals who are facing foreclosure. This article will discuss some of the issues which initially arise when clients face a foreclosure of their homes.
Is there a way to stop a foreclosure in a residential property?
Is a Lawsuit Always the Answer?
Not everyone facing foreclosure has a valid defense. If your potential client borrowed the money in an arm’s length transaction and simply cannot afford to pay the mortgage, the best advice may be to seek refinancing or to seek a loan modification. Hiring even the most skilled lawyer cannot reverse a decision made by the client 5 years earlier in a much happier economic time. It may be time for a referral to a bankruptcy attorney. Effective strategies in a bankruptcy setting will hopefully be the subject of another article.
What about a Bond?
Another critical conversation with the client before taking legal action concerns the bond. If the borrower prevails in a hard fought injunction proceeding, a bond is mandatory. The minimum bond is $5,000. That does not mean that your client posts 10% of $5,000. Instead, bonding companies require 100% collateral plus a bond premium, which is usually a small percentage of the total, such as 2 or 3 percent. Thus, it is usually better to post cash as an undertaking.
It is very important to have the conversation with the borrower about the potential for a large bond. If there is no hope of coming up with even a minimal bond, it makes little sense to expend resources pursuing an injunction.
Does the case have what it takes to obtain a provisional remedy?
The main points to focus on when evaluating whether a case has what it takes to obtain a preliminary remedy are: (1) an inadequate remedy at law, and; (2) a reasonable likelihood of prevailing on the merits. Carefully read Code of Civil Procedure sections 525-534, particularly section 526, which specifies the grounds for issuance of an injunction as well as Court Rules 3.1150 through 3.1152.
Probing client interviews are extremely important to develop the facts which will support the complaint. The same facts will support the ex parte application for a temporary restraining order and eventually a motion for a preliminary injunction.
Frequently, the scenario begins when the borrower gets behind in payments on his or her mortgage for a variety of reasons. The borrower then tries to work things out with the lender to get current. There’s frequently an interim agreement, sometimes called a forbearance agreement, loan modification or something else. Once the interim agreement is in place, the lender considers a more “permanent” loan modification. In doing so, the borrowers are frequently asked to jump through a seemingly endless array of hoops.
At this critical stage, the borrowers frequently are told a modification is imminent but the borrower must accomplish a variety of tasks which frequently include payment of large sums of money, additional collateralization, etc.
Important facts are those that show detrimental reliance on promises by the lender, e.g., “the lender told me if I delivered $20,000 by July 3, 2010, I would qualify for a loan modification.” One example of detrimental reliance occurred in Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031. In Garcia, the borrowers alleged that they informed the lender that they had sought a high interest loan on another piece of property to pay the balance owed on their other property which secured the loan. The borrower claimed that promissory estoppel prevented the lender from foreclosing. The lender foreclosed and did not even tell the borrower. Id. at 1035-1036. The Los Angeles County trial court agreed with the lender and granted summary judgment. The Court of Appeal reversed, finding facts sufficient to support a finding of promissory estoppel.
Borrowers commonly report that the lender breached its oral representations. However, alleged breaches of oral contracts are typically insufficient to forestall a foreclosure since the Statute of Frauds requires these contracts to be in writing. Moreover, a written contract may generally only be modified by another written contract, in order for the modification to be valid. Civil Code section 1698.
The borrower’s attorney doesn’t need a complex legal argument to obtain an injunction. He or she needs a compelling factual “hook” to save a home. Discovering all of the facts is the key to this. This means extensive questioning of the client as if you are taking a deposition and thorough yet succinct declarations to support all motions and applications.
Inadequate remedy and irreparable harm
The law provides that real property is “unique.” This means that if a person loses their home, money damages are insufficient to compensate that person. When money damages are inadequate, the “irreparable injury” element should be established. For starters, Civil Code section 3387 provides that “[i]t is to be presumed that the breach of an agreement to transfer real property cannot be adequately relieved by pecuniary compensation. In the case of a single-family dwelling which the party seeking performance intends to occupy, this presumption is conclusive. In all other cases, this presumption is a presumption affecting the burden of proof.”
Who must be named in the complaint?
Lenders regularly use outside companies to conduct their foreclosures. For example, Chase Home Finance, LLC and Wells Fargo Bank, N.A. utilize NDEX West, LLC (among others) to actually foreclose on the home. In the rush to file the complaint and the application for a TRO, don’t forget to determine if another company is actually foreclosing on the home while you are pursuing the only the lender.
If you obtain a provisional remedy for a client and your client posts a bond, you have achieved a status quo during the litigation. Frequently, this provides an impetus for the lender to offer attractive refinancing to the borrower. You can also avoid a trial. The client should give this option serious consideration.
Matt Clarke is a Shareholder in Kelley Clarke PC