As reported in our blog article below, in June the Second District Court of Appeal held that California’s non-judicial foreclosure statutes do not grant a defaulting borrower the right to enjoin a foreclosure sale by alleging that the lender lacks standing. (Keshtgar v. U.S. Bank, N.A. (2014) 226 Cal.App.4th 1201.)
Under California’s non-judicial foreclosure statutes, a defaulting borrower cannot enjoin a lender’s initiation of foreclosure proceedings by asserting that the lender lacks standing. (Keshtgar v. U.S. Bank, N.A. (2014) 192 Cal.App.4th 1149 (Second Dist., June 9, 2014) (“Keshtgar”).)
Relying principally on: (1) California’s non-judicial foreclosure statutes (Civ.Code, §§ 2924–2924k) and (2) the prior decision of Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149 (“Gomes”), the Second District Court of Appeal affirmed the lower court’s decision to sustain the foreclosing lender’s demurrer without leave to amend and enter judgment against the borrower. The court held that a defaulting borrower could not preemptively enjoin a non-judicial foreclosure sale even if the wrong entity was foreclosing on the property.
Keshtgar represents the “bookend” to the Fourth District’s 2011 Gomes decision, in which the court held that a defaulting borrower could not preemptively enjoin a non-judicial foreclosure sale by claiming that the lender (or its agent) lacked standing. In between Gomes and Keshtgar, the Fifth District’s decision in Glaski v. Bank of America, N.A. (2013) 218 Cal.App.4th 1079 (“Glaski”) distinguished Gomes in a post-foreclosure action for damages. Keshtgar’s disagreement with Glaski arguably creates a conflict between the districts that California Supreme Court may elect to address.
A new decision in Ash v. North American Title Co. holds that (1) contract damages based upon a bankruptcy were not foreseeable, and (2) an escrow holder was entitled to a jury instruction as to intervening or superceding causes (i.e., the bankruptcy). The decision also highlights a potential for some judges to try to impose greater responsibilities on escrow holders.
Currently, California law requires an escrow holder to be responsible only for following strictly the escrow instructions; it has no duty to police the transaction or the parties to it. ( See Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705 (“Summit”).) Because an escrow holder represents both parties to an escrow, it cannot have a full agency relationship with one without being in complete conflict with the other. ( See Lee v. Title Ins. & Trust Co. (1968) 264 Cal.App.2d 160 (“Lee”).) As a result of the potential for conflict, courts have stated that escrow holders are liable only for failing to comply with their explicit instructions, not for policing their parties (except in clear cases of fraud).
The “sham guaranty” defense may absolve a guarantor of liability when no deficiency is available against the borrower, and the guarantor is really the borrower with a different name. In California Bank and Trust v. Lawler (2013) 222 Cal.App.4th 625, the Court revisited application of the “sham guaranty defense” to enforcement of a guaranty given for a note secured by a deed of trust and held the guaranty was not in fact a “sham.” For context, California’s “antideficiency” legislation, enacted after the Great Depression, limits the ability of lenders to obtain a judgment for the amount the debt exceeds the value of the security. No deficiency may be obtained following nonjudicial foreclosure of real property (§ 580d) or judicial or nonjudicial foreclosure under a purchase money deed of trust (§ 580b). Because these protections are grounded in the strong public policy to avoid exacerbating real estate downturns, the protection cannot be waived by private agreement. Section 580b(c) was amended in 2013 to expressly provide that the antideficiency limitations do not affect the liability of a guarantor for that deficiency.
If an easement owner is required to obtain governmental approval in order to develop that owner’s property, and the neighboring property owner refuses to consent to the development (e.g. refusing to execute consent for a retaining wall permit), such refusal to consent may constitute an interference with easement rights and allow the recovery of tort damages. (Dolnikov v. Ekizian, 2013 WL 6680755 (Second Dist., December 19, 2013) (“Dolnikov”)
Dolnikov is the first published California decision in several decades to address the extent of an easement owner’s “secondary easement” rights. In addition, Dolnikov represents an important developed in easement law by applying centuries-old “reasonable use” standards to an “intangible act,” in this case the servient tenement owner’s refusal to execute documents required by the City in order to develop the easement owner’s land. In this case, the refusal to cooperate with the easement owner’s development plans resulted in the recovery of tort damages.
If an express easement does not specifically identify the area of use, then the scope of permitted use may be limited to the historical use of the easement. (Rye v. Tahoe Truckee Sierra Disposal Company, Inc., 2013 WL 6578784 (Third Dist., December 16, 2013) (“Rye”).
The holding in Rye affirms an important rule of easement law in California, though most of the cases addressing this rule date back 50-100 years. Simply because an express easement exists over a general area does not automatically permit the easement owner to use the entire area. Ultimately, the scope of an easement’s use will depend upon the language in the grant of easement, the intent of the parties, and the historical use of the easement (which may date back decades).
In Citizens Business Bank v. Gevorgian (2013) 218 Cal.App.4th 602, the Court declined to enforce a subordination agreement, where modifications to the underlying loan accomplished through a “side letter” to the construction loan agreement were not disclosed or agreed to by the subordinating seller.
The seller carried back a note of $1.4 million in connection with the sale of property to be developed with 15 residential homes. The seller agreed to subordinate its carryback loan to a new $6.6 million construction loan to be obtained by the buyers from Citizens Business Bank. The unsigned construction loan agreement was provided to and approved by the seller. However, a side “letter of understanding” between the buyer/borrower and the Bank relative to the loan was not provided to the seller.
In Enloe v. Kelso, 2013 WL 3357884 (2d Dist. 2013), the Second District Court of Appeal wrote a (characteristically) “short and sweet” opinion holding that the prohibition on obtaining a deficiency judgment under a deed of trust securing the purchase price applies even if the deed of trust is given to the sellers after the close of escrow. The dispositive question is not when the deed of trust was given, but whether or not it secures purchase money. As Popeye was fond of singing, “I yam what I yam . . . .” Similarly, a purchase money obligation “is what it is” for purposes of anti-deficiency protections.
In Chanda v. Federal Home Loans Corp. (2013) 215 Cal.App.4th 746, the court analyzed application of the so-called “collateral source” rule to preclude evidence of title insurance, in the context of a claim by a lender against a broker for negligence and breach of fiduciary duty. Specifically, the lender argued that the broker had failed to properly protect it against fraud and forgery in connection with certain loans made by the lender and arranged by the broker. The notary, who was the sole point of contact for the broker with the ostensible borrowers, told the broker that the borrowers were unavailable to meet in person, but that she (the notary) would obtain the necessary signed and notarized loan documents. The broker agreed. The notary then forged the names of the borrowers to the loan documents, including deeds of trust, and forged their signatures again on a subsequent, larger, replacement loan. When the ostensible borrowers/property owners learned that their signatures had been forged, they sued the lender and the loan broker, among others, to cancel the fraudulently obtained trust deeds and recover damages. The lender in turn sued the broker, alleging negligence and breach of fiduciary duty in failing to protect against the notary’s fraud.
Biancalana v. T.D. Service Co., — Cal.App.4th — (May 16, 2013)
California’s Supreme Court affirmed a trustee’s right to void a non-judicial foreclosure sale based on mistakes in the foreclosure process discovered before delivery of a trustee’s deed to the successful bidder. The case affirms existing California law that there is a conclusive presumption that the foreclosure sale was conducted properly and regularly, but only after the sale has concluded and the trustee’s deed has been delivered to the buyer.