In Valbuena v. Ocwen Loan Servicing, LLC, (2015) 237 Cal.App.4th 1267, the court of appeal held that the Homeowner’s Bill of Rights (“HBOR”, Civil Code §§ 2920.5 et al.), did not require a defaulting debtor to tender the loan balance as a condition of filing suit for violations of the pre-foreclosure sale loan modification requirements contained in the HBOR.
This was a “dual tracking” case. Dual tracking occurs when a bank forecloses on a loan while it is in the process of negotiating with the borrower to avoid foreclosure, and it is generally prohibited by the HBOR. (Civil Code §§ 2923.6, 2924.12.) The HBOR provides that a mortgage servicer must offer the borrower a loan modification or workout plan, and that the loan servicer it shall not record a notice of default or conduct a trustee’s sale while the loan modification application is pending — and otherwise not until the loan servicer makes a written determination that the borrower is not eligible and the 30 day period to appeal that determination has expired.
In this case, the loan servicer sent the debtor a letter on March 13th offering to modify the loan and stating that the foreclosure sale will be stopped pending the debtor’s application, although the letter was ambiguous about the time deadlines to submit a complete application. The debtor responded to Ocwen’s letter by submitting various financial documents on March 21 and March 23. Then, on March 25, the same date as the foreclosure sale, Ocwen sent the debtor a letter stating that it was not eligible for loan modification because the debtor’s completed application had not been timely submitted.
The trial court granted Ocwen’s demurrer and dismissed the case based on an outdated authority that a defaulting borrower cannot bring suit unless it first tenders the entire loan balance. However, the court of appeal reversed, finding no such requirement in the HBOR, and finding that such a requirement would be inconsistent with the HBOR’s consumer protection purposes.
The court of appeal also reversed the trial court’s demurrer on the issue of whether the borrower’s loan application was timely and “complete”. The HBOR defines a complete submission as the submission of all documents required by the mortgage servicer within a reasonable timeframe specified by the loan servicer. Given the facts of this case, in which the borrower was in contact with the loan servicer and submitted documents two days before the foreclosure sale, the court held that the timely application issue was one for trial.
©2015 Miles J. Dolinger. This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship.
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