Legal Update

HOMEOWNER HAS NO RIGHT TO SUE LENDER WHO FORECLOSES WITHOUT COMPLYING WITH MANDATORY 90-DAY DELAY (CIVIL CODE §2923.52 et seq)

  • February 2nd, 2011
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Private individuals do not have the right to sue a non-complying lender or seek the invalidation of a foreclosure sale even though the lender failed to comply with Civil Code §§2923.52 which requires certain lenders to delay foreclosure proceedings for 90 days to allow the borrower time to seek loan modification.  Only regulatory agencies possess the authority to enforce lender compliance.  If the foreclosure sale has already occurred, the lender’s noncompliance with §§2923.52 or 53 does not affect the validity of the foreclosure sale.  Vuki v. Superior Court (2010) 189 CA4th 791.

FACTS:   On October 7, 2009, Lucy and Manatu Vuki lost their home to foreclosure.  The foreclosing lender, HSBC Bank USA (“HSBC”), bought the property at the sale and began an unlawful detainer action to seek possession of the property.  The Vukis subsequently filed bankruptcy in an effort to stay in their home, but HSBC obtained relief from the automatic stay so that it could evict the Vukis.  In response, the Vukis filed an application for a temporary restraining order to seek a stay of eviction on April 9, 2010.  After their request was denied and the eviction was allowed to proceed, the Vukis filed suit against HSBC alleging the lender failed to adhere to the statutory requirements of Civil Code §2923.52 and 53.

To commence non-judicial foreclosure proceedings a lender must file a notice of default, followed by a notice of trustee’s sale filed three months later.  However under §2923.52, a lender is required to wait an additional 90 days after the three-month period following a notice of default, in order to allow the parties to pursue a loan modification to prevent foreclosure.  The 90-day delay applies to any first position loans recorded between January 1, 2003 and January 1, 2008 and secured by owner-occupied residential property.  However, a lender is exempted from providing the extra 90 days if the lender has a comprehensive loan modification program, as provided by §2923.53.  To seek the exemption, a lender must obtain an order from the Commissioner of Corporations.

DECISION:  After considering the statutory language of §§2923.52 and 53, the Court of Appeal ruled in favor of HSBC, holding that §2923.52 and 53 could not be enforced by a private right of action, but only by a regulatory agency.  In so doing, the court explained that the regulatory agencies’ enforcement authority stemmed from their power to terminate the license of any company whose loan modification program is not in compliance with the statutory requirements.  In contrast, the statutory language provides no reference to any private right to enforce compliance with the statute.  The court pointed out that the statutes not only fail to express any private right to sue, they exhibit a clear intent not to allow a private right to sue, instead reserving that enforcement power for regulatory agencies.

The court then turned its attention to §2923.54 to determine the effect a lender’s noncompliance would have on a completed foreclosure sale.  Under §2923.54(b), a lender’s failure to comply with the loan modification program requirements of §§2923.52 and 53 will not invalidate any otherwise valid foreclosure sale.  This meant that even if HSBC had been found to have violated §§2923.52 or 53, the foreclosure sale of the Vukis’ property would not be invalidated. 

Since the Vukis had no private right to enforce the statutes, and even if they did the foreclosure sale would not have been invalidated, the court denied the Vukis’ petition for the requested writ and discharged the stay of the Vukis’ eviction, allowing HSBC to continue the eviction proceedings.

ANALYSIS:  If a lender forecloses a first position loan that was recorded against a homeowner’s owner-occupied residential property between January 1, 2003 and January 1, 2008, the lender must delay the foreclosure sale an additional 90 days if the lender does not have an approved loan modification program.  However, if the lender fails to delay the sale as required, the borrower does not have the right to sue the lender for violation of Civil Code §2923.52 or 53.  In addition, if an otherwise valid foreclosure sale has already taken place, the sale will not be set aside by the court. 

A homeowner at risk of losing their home to foreclosure should seek legal assistance to determine the options available to them.  Because a lender’s violation of §§2923.52 or 53 will not result in the invalidation of a completed foreclosure sale, a homeowner cannot rely on these statutes for protection.  Alternative action, such as a short sale or loan modification, must be taken as early as possible to maximize the chances for success. 

To determine if a lender has an approved loan modification program (and is exempt from the 90 day delay statutes), a homeowner should review the list published on the Commissioner’s website at:

 http://www.corp.ca.gov/FSD/CFP/pdf/ExemptList.pdf.