What is California Civil Code section 2923.5 and how did the Mabry Case apply this law?
Prior to commencing a foreclosure, lenders with certain types of loans are required by California Civil Code section 2923.5 (“2923.5”) to make contact with the borrower in person or by telephone to “assess the borrower’s financial situation” and to “explore options for the borrower to avoid foreclosure.” The lender cannot file a Notice of Default (which starts the formal foreclosure process) until 30 days after complying with 2923.5. This law only applies to mortgages or deeds of trust recorded from January 1, 2003, to December 31, 2007, that are secured by owner-occupied residential real property containing no more than four dwelling units.
In the recent case of Mabry v. The Superior Court of Orange County (June 2, 2010), the Court of Appeals of California held that 2923.5 provides a private right of action against any lender that fails to comply with 2923.5. This means that homeowners have the right to sue the lender for a violation of 2923.5 in order to postpone the foreclosure sale. The Court in Mabry answered a number of questions regarding the application of 2923.5. Here is an excerpt of the questions and answers from the case:
(A) May section 2923.5 be enforced by a private right of action?
Yes. Otherwise the statute would be a dead letter.
(B) Must a borrower tender the full amount of the mortgage indebtedness due as a prerequisite to bringing an action under section 2923.5?
No. To hold otherwise would defeat the purpose of the statute.
(C) Is section 2923.5 preempted by federal law?
No — but, we must emphasize, it is not preempted because the remedy for noncompliance is a simple postponement of the foreclosure sale, nothing more.
(D) What is the extent of a private right of action under section 2923.5?
To repeat: The right of action is limited to obtaining a postponement of an impending foreclosure to permit the lender to comply with section 2923.5.
(E) Must the declaration required of the lender by section 2923.5, subdivision (b) be under penalty of perjury?
No. Such a requirement is not only not in the statute, but would be at odds with the way the statute is written.
(F) Does a declaration in a notice of default that tracks the language of section 2923.5, subdivision (b) comply with the statute, even though such language does not on its face delineate precisely which one of the three categories set forth in the declaration applies to the particular case at hand?
Yes. There is no indication that the Legislature wanted to saddle lenders with the need to “custom draft” the statement required by the statute in notices of default.
(G) If a lender did not comply with section 2923.5 and a foreclosure sale has already been held, does that noncompliance affect the title to the foreclosed property obtained by the families or investors who may have bought the property at the foreclosure sale?
No. The Legislature did nothing to affect the rule regarding foreclosure sales as final.
(H) In the present case, did the lender comply with section 2923.5?
We cannot say on this record, and therefore must return the case to the trial court to determine which of the two sides is telling the truth. According to the lender, the borrowers themselves initiated a telephone conversation in which foreclosure-avoidance options were discussed, and there were many, many phone calls to the borrowers to attempt to discuss foreclosure-avoidance options. According to the borrowers, no one ever contacted them about nonforeclosure options. The trial judge, however, never reached this conflict in the facts, because he ruled strictly on legal grounds: namely (1) that section 2923.5 does not provide for a private right of action and (2) section 2923.5 is preempted by federal law. As indicated, we have concluded otherwise as to those two issues.
(I) Can section 2923.5 be enforced in a class action in this case?
Not under these facts. The operation of section 2923.5 is highly fact-specific, and the details as to what might, or might not, constitute compliance can readily vary from lender to lender and borrower to borrower.
As you can see from the statements in the Mabry Case above, 2923.5 provides a powerful tool to a borrower who is facing foreclosure. A homeowner may sue their lender and force them to comply with this law. If you have any questions about the Mabry Case or the application of California Civil Code section 2923.5 to your matter, please feel free to contact me directly.
The Mabry v. Superior Court case can be found here: http://caselaw.lp.findlaw.com/data2/californiastatecases/g042911.pdf
Below is the language of Civil Code section 2923.5:
(a) (1) A mortgagee, trustee, beneficiary, or authorized agent may not file a notice of default pursuant to Section 2924 until 30 days after initial contact is made as required by paragraph (2) described in subdivision (g).
(2) A mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. During the initial contact, the mortgagee, beneficiary, or authorized agent shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the mortgagee, beneficiary, or authorized agent shall schedule the meeting to occur within 14 days. The assessment of the borrower’s financial situation and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose. In either case, the borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting may occur telephonically.
(b) A notice of default filed pursuant to Section 2924 shall include a declaration that the mortgagee, beneficiary, or authorized agent has contacted the borrower, has tried with due diligence to contact the borrower as required by this section, or that no contact was required pursuant to subdivision (h).
(c) If a mortgagee, trustee, beneficiary, or authorized agent had already filed the notice of default prior to the enactment of this section and did not subsequently file a notice of rescission, then the mortgagee, trustee, beneficiary, or authorized agent shall, as part of the notice of sale filed pursuant to Section 2924f, include a declaration that either:
(1) States that the borrower was contacted to assess the borrower’s financial situation and to explore options for the borrower to avoid foreclosure.
(2) Lists the efforts made, if any, to contact the borrower in the event no contact was made.
(d) A mortgagee’s, beneficiary’s, or authorized agent’s loss mitigation personnel may participate by telephone during any contact required by this section.
(e) For purposes of this section, a “borrower” shall include a mortgagor or trustor.
(f) A borrower may designate, with consent given in writing, a HUD-certified housing counseling agency, attorney, or other advisor to discuss with the mortgagee, beneficiary, or authorized agent, on the borrower’s behalf, the borrowers financial situation and options for the borrower to avoid foreclosure. That contact made at the direction of the borrower shall satisfy the contact requirements of paragraph (2) of subdivision (a). Any loan modification or workout plan offered at the meeting by the mortgagee, beneficiary, or authorized agent is subject to approval by the borrower.
(g) A notice of default may be filed pursuant to Section 2924 when a mortgagee, beneficiary, or authorized agent has not contacted a borrower as required by paragraph (2) of subdivision (a) provided that the failure to contact the borrower occurred despite the due diligence of the mortgagee, beneficiary, or authorized agent. For purposes of this section, “due diligence” shall require and mean all of the following:
(1) A mortgagee, beneficiary, or authorized agent shall first attempt to contact a borrower by sending a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
(2) (A) After the letter has been sent, the mortgagee, beneficiary, or authorized agent shall attempt to contact the borrower by telephone at least three times at different hours and on different days. Telephone calls shall be made to the primary telephone number on file.
(B) A mortgagee, beneficiary, or authorized agent may attempt to contact a borrower using an automated system to dial borrowers, provided that, if the telephone call is answered, the call is connected to a live representative of the mortgagee, beneficiary, or authorized agent.
(C) A mortgagee, beneficiary, or authorized agent satisfies the telephone contact requirements of this paragraph if it determines, after attempting contact pursuant to this paragraph, that the borrower’s primary telephone number and secondary telephone number or numbers on file, if any, have been disconnected.
(3) If the borrower does not respond within two weeks after the telephone call requirements of paragraph (2) have been satisfied, the mortgagee, beneficiary, or authorized agent shall then send a certified letter, with return receipt requested.
(4) The mortgagee, beneficiary, or authorized agent shall provide a means for the borrower to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.
(5) The mortgagee, beneficiary, or authorized agent has posted a prominent link on the homepage of its Internet Web site, if any, to the following information:
(A) Options that may be available to borrowers who are unable to afford their mortgage payments and who wish to avoid foreclosure, and instructions to borrowers advising them on steps to take to explore those options.
(B) A list of financial documents borrowers should collect and be prepared to present to the mortgagee, beneficiary, or authorized agent when discussing options for avoiding foreclosure.
(C) A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with their mortgagee, beneficiary, or authorized agent.
(D) The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
(h) Subdivisions (a), (c), and (g) shall not apply if any of the following occurs:
(1) The borrower has surrendered the property as evidenced by either a letter confirming the surrender or delivery of the keys to the property to the mortgagee, trustee, beneficiary, or authorized agent.
(2) The borrower has contracted with an organization, person, or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to mortgagees or beneficiaries.
(3) A case has been filed by the borrower under Chapter 7, 11, 12, or 13 of Title 11 of the United States Code and the bankruptcy court has not entered an order closing or dismissing the bankruptcy case, or granting relief from a stay of foreclosure.
(i) This section shall apply only to mortgages or deeds of trust recorded from January 1, 2003, to December 31, 2007, inclusive, that are secured by owner-occupied residential real property containing no more than four dwelling units. For purposes of this subdivision, “owner-occupied” means that the residence is the principal residence of the borrower as indicated to the lender in loan documents.
(j) This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2013, deletes or extends that date.