ca homeowners bill of rights: accessing its current impact

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©2014 Greenberg Traurig, LLP. All rights reserved.

The CA Homeowners Bill of

Rights Assessing Its Current Impact on the Industry

Jennifer Gray | [email protected] | 310.586.7730

Title of Presentation Greenberg Traurig, LLP | gtlaw.com

Cal. Civil Code §2923.55

• Requires notice of borrower’s right to documents concerning the loan and payment history

• Contact the borrower in person or by telephone to assess the borrower's financial situation and explore foreclosure avoidance options (similar to original §2923.5)

• Requires declaration of compliance to be attached to NOD

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Private Right of Action • Prior to foreclosure:

• Injunction to enjoin a material violation of the applicable section.

• If the violation is corrected, the injunction may be dissolved and no damages available

• After foreclosure: • Actual economic damages resulting from a material violation

of any of those sections, where the violation was not corrected prior to the foreclosure

• If the material violation was intentional or reckless or resulted from willful misconduct by the mortgage servicer, the court may award the borrower the greater of treble actual damages or statutory damages of $50,000

• Prevailing borrower may be awarded attorney’s fees and costs

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HBOR Limitations HBOR does not apply to:

• Entity borrowers

• Loans for investment property

• Borrowers in default but already in bankruptcy

• Borrowers who have already surrendered their property to the lender

• Borrowers who retained foreclosure avoidance consultant

• Servicers who signed and are in compliance with National Mortgage Settlement

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Defenses to §2923.55


HOLA Preemption

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Deschaine v. IndyMac Mortgage Services 2013 WL 6054456 (E.D. Ca, Nov. 15, 2013)

• Loan was originated by IndyMac Bank, FSB and serviced by OneWest Bank, FSB

• Borrower alleged failure to comply with:

• Pre-NOD requirements -- §2923.55

• Dual-Tracking -- §2923.6(c)

• Appeal provisions -- §2923.6(d)

• SPOC -- §2923.7

• All claims preempted under HOLA

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Deschaine v. IndyMac Mortgage Services 2013 WL 6054456 (E.D. Ca, Nov. 15, 2013)

• HOLA applies because the loan was originated and serviced by an FSB.

• Traditional HOLA field preemption applies because:

• Loan was originated prior to enactment of Dodd-Frank, thus traditional HOLA field preemption applies, citing provision of Dodd-Frank that states that its preemption provision shall not affect contracts entered into on or before the date of enactment.

• HBOR (including Section §2923.55) is preempted because:

• It imposes requirements on the “processing, origination, [and] servicing” of plaintiff's mortgage loan and application for a loan modification in addition to those imposed by federal law. 12 C.F.R. § 560.2(b)(10).

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Marquez v. Wells Fargo Bank, NA 2013 WL 5141689 (N.D. Cal., Sept. 13, 2013)

• Plaintiffs alleged that lender failed to attempt outreach under §2923.55.

• Can Wells -- a national bank -- assert HOLA preemption?

• Loan originated by World Savings Banks, FSB

• Deed of Trust -- loan agreement “shall be governed by and construed under federal law and federal rules and regulations, including those for federally chartered savings institutions....”

• Loan agreement was binding on World Savings Bank and its successors and assigns.

• “ Numerous district courts have held that successors in interest may properly assert preemption under HOLA even if the successor entity is not a federally chartered savings.”

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Marquez v. Wells Fargo Bank, NA, cont’d

• Is §2923.55 preempted?

• If the state law is of the type listed in 12 CFR § 560.2(b), the analysis ends and the law is preempted.

• [Laws are preempted] if they impose requirements on “[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages....” 12 C.F.R. §560.2(b)(10).

• “Claims for violation of Civil Code § 2923.5 (the predecessor of § 2923.55) are preempted by HOLA because they fall “squarely within the scope of HOLA's Section 560.2(b)(10).’”

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Marquez v. Wells Fargo Bank, NA, cont’d

All HBOR requirements that fall within HOLA are preempted

• §§2923.6 (dual-tracking) and 2923.7 (SPOC) claims relate to “processing, origination, sale or purchase of . . . mortgages and terms of credit.”

• §2924.17 “robo-signing” ban “imposes requirements on the processing and servicing of mortgages.”

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Rijhwani v. Wells Fargo Home Mortgage, Inc. 2014 WL 890016 (N.D.Ca., March 3, 2013)

• Rejected opinions that successor to a savings association could

assert preemption on basis of status of loan originator and that status of originator determines applicability of HOLA for life of loan

• World Savings Bank's conduct before its merger with Wells Fargo on November 1, 2009 would be governed by HOLA where appropriate, while Wells Fargo's own conduct after that date would not

• “All of the wrongful conduct alleged by Plaintiffs was done by Wells Fargo and occurred from 2011 to 2013, well after Wachovia merged into Wells Fargo. This means that Wells Fargo, which is not a federal savings association or bank, may not assert HOLA preemption in this particular action.”

•

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National Bank Act Preemption

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Tamburri v. SunTrust 875 F.Supp.2d 1009 (N.D. Ca. 2012)

No NBA preemption for §2923.5 (pre-HBOR)

• Broad HOLA preemption language is absent from the NBA.

• In contrast to 12 C.F.R. §502.2(b) of the HOLA regulations which broadly declare categories of state law that are preempted per se, 12 C.F.R. § 34.4(b) declares categories that are not preempted if they have only an incidental effect on bank's lending powers.

• Under NBA conflict preemption, Plaintiff's §2923.5 claim does not impose any constraints on banks' lending or servicing powers .

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Danesh-Bahreini v. JPMorgan Chase Bank, NA 2014 WL 1303643 (CA Court Appeal, 1st Dist. April 1, 2014)

• Complaint alleged a long history of contacts re loan modification with Chase but nevertheless asserted that Chase violated 2923.5 because it did not discuss appellants' financial condition or explore options to avoid foreclosure, and that Chase did not undertake its actions in good faith.

• Court of Appeals upheld the district court’s dismissal on the grounds that 2923.5 (pre-HBOR) requires only the most limited of contact with the borrower. Since the complaint had alleged a long history of contact, there could be no violation of 2923.5.

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Danesh-Bahreini v. JPMorgan Chase Bank, NA, cont’d

• “Appellants' complaint acknowledges contacts with respondents

concerning their loan applications … [T]o look behind the acknowledged contacts in order to determine what degree or kind of consideration was in fact given to modifying the loan would be to cross the line from procedural step in a foreclosure action—permitted under Mabry's analysis—to preempted loan servicing.”

• By actively entertaining plaintiffs' applications for a loan modification, lender did more than what was required.

• Any "assessment" requirement must necessarily be simple—something on the order of, `why can't you make your payments?’”

• “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).

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Window of Inapplicability/Non Retroactivity

Timing / Window of Inapplicability

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Pruitt v. U.S. Bank 2013 WL 6798999 (E.D.Ca., Dec. 20, 2013)

• Original §2923.5 applied only to mortgages executed between January 1, 2003 and December 31, 2007.

• Mortgages executed after December 31, 2007 not covered

• Subsequent enactment of section §2923.5/§2923.55 in 2012 does not include a look-back requirement that would apply the requirements of section §2923.5 to mortgages executed after the inclusion date of December 31, 2007, but before the effective date of the successor enactment of section §2923.5 in 2012.

• “The legislative history of section §2923.5 indicates a window of some four years, encompassing both the execution of Plaintiff's mortgage and the notice of default, during which time the provisions of section §2923.5 do not apply.”

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Non-Retroactivity

• HBOR effective as of January 1, 2013

• No retroactive intent.

• No claim where NOD executed prior to 1/1/13.

• Claim may exist, however, where other conduct continued after 1/1/13.

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Borrower Not Covered or Servicer Exempt

National Mortgage Settlement Exemption

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Rijhwani v. Wells Fargo Home Mortgage, Inc. 2014 WL 890016 (N.D.Ca., March 3, 2013)

• Wells asserted that it was not subject to HBOR as a signatory of NMS

• Court held that argument fails at the motion to dismiss stage

• “This safe harbor appears to be an affirmative defense to be raised on summary judgment and for which Wells Fargo has the burden of proof”

• “The safe harbor's lack of applicability is not an element of Plaintiffs' HBOR claim that they must allege to survive a motion to dismiss.”

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Pleading Defenses / Compliant Declaration

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Diaz v. Wells Fargo Bank, NA 2013 WL 6172648 (N.D. Ca, Nov. 23, 2013)

• Borrower alleged that Wells recorded NOD without discussing foreclosure avoidance options with Plaintiff and without informing Plaintiff of his rights under the statute.

• Wells responded that its Declaration of Compliance attached to NOD barred any claim under §2923.55.

• Plaintiff argued that his complaint called into question the truth of the validity of the Declaration.

• “A declaration attached to the Notice of Default is sufficient to satisfy Defendants' obligations under California laws that require lenders to contact borrowers. For example, section §2923.5, which requires similar notices to borrowers from lenders, is satisfied by a declaration of compliance with applicable statutory obligations.”

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Intengan v. BAC Home Loans Servicing 214 Cal.App.4th 1047 (1st Dist. 2013)

Declaration of compliance NOT a defense at pleadings stage:

• Contents of declaration attached to NOD could not be judicially noticed to sustain demurrer on grounds of compliance with section §2923.5.

• “Civil Code section §2923.5 requires not only that a declaration of compliance be attached to the notice of default, but that the bank actually perform the underlying acts . . . that would constitute compliance.”

• “While judicial notice could be properly taken of the existence of [the] declaration, it could not be taken of the facts of compliance asserted in the declaration.”

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Jent v. Northern Trust Corp. 2013 WL 5806024 (E.D. Ca., Jan. 15, 2014)

• Allegations that lender recorded the NOD with an accompanying declaration that contained false and contradictory statements, which caused plaintiffs to lose out on obtaining outside credit and lowered the value and vendibility of the Property.

• Contention that conduct was intentional insufficient to remove the limitations on remedies available under 2924.1 and impose UCL liability.

• “Plaintiffs have not offered any authority-and the court is not aware of any-stating that the safe harbor established by section 2924.12 does not apply to intentional conduct. Instead, by its own terms, the statute precludes from liability “any violation ... corrected and remedied prior to a trustee's sale.”

• “Plaintiffs may not use the general unfair competition law to assault that harbor,” allegations of intentional wrongdoing notwithstanding.

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Take-Aways

• Preemption may be a strong defense in federal court if loan originated by savings bank.

• NBA preemption unlikely to be successful, but there may be some arguments as §2923.55 imposes greater requirements and penalties than original §2923.5.

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My Contact Information

Jennifer L. Gray Greenberg Traurig [email protected] 310.586.7730

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