What Do You Owe and to Whom Do You Owe It? California Civil Code 2924

By George W. Mantor

RISMEDIA, June 8, 2010—“Produce the Note” foreclosure defense strategies have given some people hope, albeit false in many cases, in defending their homes against unlawful foreclosures.

Note that in 30 states there is no judicial review of the foreclosure documentation and no opportunity to raise the issue of standing unless the homeowner sues the foreclosing entity. Few people have the resources to wage a lengthy battle against the best attorneys tax payer’s money can buy.

And, in that handful of cases in California, one of the nonjudicial states, where the homeowners have fought back, courts have been dismissing those lawsuits ruling that the nonjudicial foreclosure statutes, the infamous 2924, occupy the field and are exclusive as long as they are complied with.

But, because there is no review, foreclosing entities routinely violate those requirements without any fear of being challenged. Time and time again, we find that the foreclosing entities do not even bother to notify the homeowner until the foreclosure has already taken place.

And then, it is almost too late. As a last-ditch effort, the homeowner litigates to stop the issuance of an unlawful detainer and ultimate eviction.

At this point, the court will not entertain any objections as to standing or predatory lending or other issues. Judges simply cite 2924 and order the eviction.

These courts view the statutes that regulate nonjudicial foreclosures as all inclusive of all the requirements and remedies in foreclosure proceedings.

Indeed, California Civil Code sections 2924 through 2924k provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust.

Thus, in the case where a notice of default is recorded and a lawsuit then filed in response to stop the foreclosure, based upon the objection that the foreclosing party does not possess the underlying note, all too often the Court will simply dismiss the case and claim “2924 has no requirement to produce the note.”

The lynchpin of that legal theory is that the borrower agreed to an obligation, defaulted, the remedy is foreclosure, and that is the law. The note isn’t needed.

That is a dead end. The note is not the end game. They may even have the note with all the proper endorsements and a clear and demonstrable chain of title, they may not. If they have it, they may not produce it, even under penalty of sanctions.

Even if they produce it, they still have to deal with your predatory lending claims, and for that, a full accounting of all moneys paid in connection with the loan, including any insurance or TARP funds should be produced in discovery. The full accounting would reveal evidence of predatory lending or servicing for which penalties can be substantial.

We aren’t looking for the note; we are looking for the creditor. The person to whom the obligation, if there is one, is actually owed and the only party who would have standing to bring the foreclosure or to appear in court to answer questions regarding TILA, RESPA, HOEPA, and or a host of other provable allegations that show either origination fraud, servicing fraud, or both.

Your suit needs to lead off with something more substantial than a confusing paper trail attempting to show that they don’t have the right to foreclose. It’s true, but right now, at least, that isn’t working in many courts. That will all come out in the discovery process if the suit survives 2924 and there is no settlement between the parties.

The meat and the muscle of your case are predatory lending or predatory loan servicing, an increasingly prevalent form of unlawful foreclosure.

Why? Because your loan, by its very terms, may have been designed to fail and you were either steered into the loan, given no other options, promised a refinance, or just blindsided at the signing table. If you had a 750 FICO, for example, and you didn’t get a great thirty year fixed rate loan, you may have been the victim of predatory lending. If you got a 2-28 adjustable or a 3-36 or a pick a pay, or an option arm, you may have been the victim of predatory lending.

If you got your loan in the last few years, there is a strong possibility that it was pledged as part of a pool of loans with a large percentage of loan instruments with terms that the underwriters knew would contribute to a high probability of default.

This would make it a virtual certainty that the entire pool would surpass the default threshold established in the Pooling and Servicing Agreement, and the Credit Default Swaps would reap big rewards for the banks.

But, it would also mean that losses were covered and that these were the very pools that would be eligible for TARP funds to also offset the loss.

You may have been the victim of high-tech identity theft if your Social Security Number and credit report were used to legitimize and to showcase the quality of the pool…which was probably loaded with loans designed to fail.

You may be the victim of servicing fraud wherein the servicer falsely states that you haven’t insurance, didn’t pay your property taxes, or missed your payment, and then uses this to extract fees and penalties, and default the loan.

You may be the victim of servicing fraud if you were told that to be eligible for a modification you had to be behind in your payments and your credit was damaged as a result. Or, your home was foreclosed with no notice while you were supposedly awaiting approval of your modification.

It is these matters that you wish to address and the pretender lender will quickly tell you that it isn’t them. Particularly, if it is MERS. MERS abets predatory lending and is thus one of the main pillars of loan securitization. It removes the transparency as to the identities of those who would have liability for these claims.

MERS was created so that more predatory loans could be placed in pools without increasing the liability of predatory lending claims for its members.

So, if the foreclosing entity isn’t the creditor, who is? Possibly, no one. But, if anyone knows, it should be MERS. That is what they do. They should not be able to object to this discovery as being vague, overly burdensome, beyond the scope of the matter, etc.

Lawyers are pulling a fast one on the court, and with a wink and a nod, the judges play along with the 2924 and its supposed total exclusivity.

But, just because the lawyers say so, doesn’t make it so. Lawyers are kind of like magicians, they want you to look in one direction so you won’t see the deception. They pound the laws and facts that help them to distract the opposition from the laws and facts that would hurt them.

As the courts are currently allowing the application of the law, the consequences are a complete denial of due process. Surely, no one can argue that 2924 was intended to sanction fraud or to abet a crime in progress.

Just the opposite. The law’s very purposes include protection for both the debtor and the creditor.

The three stated purposes of 2924 are: “(1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.”

Let’s break it down: purpose one relates to the creditor/beneficiary. If that isn’t the foreclosing entity, then purpose two and three would be frustrated.

Isn’t it fair enough to require the foreclosing entity to properly identify itself to the court and prove that they are, in fact, the legal creditor for an obligation they can prove exists?

Without a review of the legitimacy of the foreclosing entity, what is there to stop anyone from foreclosing on anyone without ever proving standing or an obligation? One way to cure this would be if an organization like the Tea Party, for example, undertook filing notices of default in the thirty nonjudicial states against all politicians, judges, news media, etc.

Then there would be a focus on purpose two, protect the homeowner against a wrongful foreclosure. Isn’t it wrongful if the person foreclosing has no stake whatsoever in the property? And, without a complete accounting, how does one establish that there is an obligation due, rising to a default? How can there be a default if the obligation were already satisfied?

In order to fulfill purposes two and three, the identity of the creditor/beneficiary must be firmly established.

Contained within 2924 is adequate protection for both the borrower and the true creditor if the courts will simply demand the fundamental evidence to prove the status of the foreclosing entity, and to determine that an obligation even exists.

But, I am unprepared to concede the underlying notion that 2924 is the only applicable law. If other crimes are committed that ultimately prove to be the proximate cause of any default, they cannot be excluded. Simply, 2924 doesn’t supersede all other law. And now, I’m not alone. We have an appeal right on point.

Recently, in the case of California Golf, L.L.C. v. Cooper, the Appellate Court held that the remedies of 2924h were not exclusive. They reversed the lower court and specifically held that provisions of the Uniform Commercial Code, UCC, Article 3 were allowed in the foreclosure context.

And, that is huge. Under California Commercial Code 3301, a note may only be enforced if one has actual possession of the note as a holder, or has possession of the note, not as a non-holder, but with holder rights.

From a defensive standpoint, this opens the door to showing that the note and mortgage were split and the foreclosing entity has nothing.

From an offensive standpoint, having identified who you may owe an obligation to, may also reveal that the obligation no longer exists and that the trust holding your note was dissolved. Once you get a foot in the door, who knows what wonders you may find?

For more on predatory servicing, see my blog: http://www.realtown.com/gwmantor/blog.

George W. Mantor is known as “The Real Estate Professor” for his consumer education efforts including a long-running radio program, monthly workshop series, public appearances, and frequent articles.

During a career dating back to 1978, he has amassed experience in new home and resale residential real estate, resort marketing and commercial and investment property.

Prior to starting his own real estate and mortgage brokerage in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition, he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS.

George is a nationally respected authority on all areas of real estate and is frequently quoted in a wide range of publications. He is an oft invited guest of Fox Business Network and for many years, he was the host of “Keepin’ It Real…Real talk about the real thing, real estate” on KCEO radio.


8 Responses to “What Do You Owe and to Whom Do You Owe It? California Civil Code 2924”
  1. Zac says:

    Any one ever heard of one of the biggest, real estate broker/lender and racketeer, con man?
    every thing that,stands in his way,he bribes!I The person I refer to is Bill Long,of Tulare CO.CA.

  2. claudia says:

    Thanks for the post, but I cannot find anything on line as to what happens if a homeowner wins on appeal, their eviction case based on no substitution of trustee ever recorded. That is our case and I know the beneficiary or its agent can also invoke the NOD BUT on the NOD the and NOS the trustee States they are either the original or substituted trustee under deed of trust, which they aren’t. And the agent for this trustee whom signed everything didn’t even share any info with us including who the beneficiary was. In fact the servicer was the beneficiary until after NOS FILED, WHEREAS they transferred to freddie Mac who was the bidder at sale. Funny thing was we did not even discover this cause the change wasn’t recorded until after the sale. So for months got a run around. Now we are AWAITING appeal from eviction court in san diego, but what happens when eviction overturned? Do we have to have civil suit filed or can we wait for freddie to make a move? Can any loophole to valid recording have appellate court rule against us. We’re still in home paying good faith $.

  3. The problem is that “produce the note” is not really a cause of action. To properly frame a cause of action, you need to cite a specific provision (text) of the law, and then show or at least allege and explain how that provision was violated in your case. Because there is no text in 2924 to “produce the note”, not producing the note is not a violation. One needs to look at the statutory scheme, find the requirements for conducting a non-judicial sale, and then explain how those specific requirements were violated by the entity that filed a notice of default. For some successful motions in Virginia, another non-judicial state, see the bryllaw site.

    • indio007 says:

      Produce the note might not be a cause of action but is a ministerial requirement. I also wouldn’t agree with having to cite statutes or codes because possession of the instrument (or affidavit of loss/destruction by competent fact witness) is customary practice. That has been settled since the lord Mansfield declared the law merchant is the common law when it comes to bills of exchange/promissory notes. That was about the 17th Century.
      there are several reason the note is required.
      1. customary proof.
      2. to cancel it.
      3. to inspect it for subsequent endorsers as they might be liable to pay it.
      4. to insure the proper party is trying to enforce it .
      Scire Facia is a real action and it can be used for multiple purposes either against the trustee or the object of trust.

  4. Mark says:

    Richard, Thanks for the info, I’ll look up your site.

  5. Mark says:

    Mr. Mantor,
    You say 30 states have no judicial review of the foreclosure documentation, so I guess what you are saying that any state that use’s non judicial ,Like my state of Massachusetts , should have some kind of a civil code section like Califorina 2924, How can we look this up ?

  6. indio007 says:

    Two words SCIRE FACIAS to dissolve, vacate annul the trust. Especially if you have evidence of the infamous note- trust split.

  7. Hello Professor:

    Try this on for size:
    1. The trustee of the mortgage trust is not a creditor beneficiary of th Deed of Trust..
    2. The payments referred to in the Notice of default were paid in fact to the alleged “creditor beneficiary” of the Deed of Trust.
    3. The Deed of Trust in the hands of the mortgage trust trustee is unenforceable because the master pooling and servicing agreement create a breach of contract of th Deed of Trust.
    4. The Trustee of the Deed of Trust lacks authority to exercise the power of sale on behalf of the trustee of the mortgage trust. If the principal lacks authority so does the principal.s agent. A wrongful foreclosure is a breach of the fiduciary obligation owed by the trustee of the Deed of Trust to the debtor.

    Please see my web page: documentary clearinghouse.com for more info.

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