CA Homeowners Bill of Rights: Accessing its Current Impact

G R E E N B E R G T R A U R I G , L L P | A T T O R N E Y S A T L A W | W W W . G T L A W . C O M
©2014 Greenberg Traurig, LLP. All rights reserved.
The CA Homeowners Bill of
Rights
Assessing Its Current Impact on the
Industry
Jennifer Gray | grayjen@gtlaw.com | 310.586.7730

Title of PresentationGreenberg 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
2

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
3

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
4

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Defenses to §2923.55

HOLA Preemption
6

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
7

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).
8

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.”
9

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).’”
10

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.”
11

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.”
•
12

National Bank Act Preemption
13

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 .
14

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.
15

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).
16

Window of Inapplicability/Non Retroactivity
Timing / Window of Inapplicability
17

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.”
18

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.
19

Borrower Not Covered or Servicer Exempt
National Mortgage Settlement
Exemption
20

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.”
21

Pleading Defenses / Compliant Declaration
22

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.”
23

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.”
24

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.
25

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.
26

My Contact Information
Jennifer L. Gray
Greenberg Traurig
grayjen@gtlaw.com
310.586.7730
27

CA Homeowners Bill of Rights: Accessing its Current Impact

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