If your lender stated they would permanently modify your mortgage payments if you made three trial modification payments on time, they must honor this promise. If you are facing this situation or one similar to it, you more than likely have a valid claim for breach of contract against your bank. Call Anand Law, PC today to discuss your rights with a qualified attorney.

• 10% interest on a loan primarily for personal, family or household purposes;
• For loans that are not for for personal, family or household purposes, the higher of 10% or 5% over the amount charged by the Federal Reserve Bank of San Francisco on advances to member banks on the 25th day of the month before the loan (including loans to be used primarily for home improvement or home purchase).

There are, however, exceptions to these limits including the “broker-arranged” exception. Click here to view the Office of the Attorney General’s web site for more information.

If you have been charged a usurious rate, you are entitled to all amounts you have paid in excess of the principal. Call Anand Law, PC today to discuss your rights with a qualified attorney.

Security interests in real property in California are most often created through the execution of two documents, a deed of trust and a promissory note. A deed of trust grants the beneficiary a security interest in property that secures the loan, while the note creates an obligation for the borrower to pay the debt (a contract). The parties to a deed of trust are typically the trustor (the borrower), the beneficiary (the lender), and the trustee (the party in whom the deed to the property is placed, in trust, until the obligation memorialized in the accompanying note is paid). See generally 4-111 California Real Estate Law & Practice § 111.04.

The parties to a deed of trust are typically the trustor (the borrower), the beneficiary (the lender), and the trustee (the party in whom the deed to the property is placed, in trust, until the obligation memorialized in the accompanying note is paid).  If a borrower defaults on payment, the trustee is authorized to sell the property by virtue of the power of sale clause in the deed of trust.

As part of the California Homeowner Bill of Rights (a series of laws which took effect in January 2013 in response to the foreclosure crisis affecting the state), prior to filing a notice of default to commence a nonjudicial sale, the law now requires that a mortgage servicer, beneficiary, or trustee contact the trustor/borrower in person or by phone in order to assess the borrower’s financial situation and discuss options available to the trustor/borrower that may avoid foreclosure. Cal. Civ. Code § 2923.5(a)(2). After this initial contact is made, the mortgage servicer, beneficiary, or trustee must wait 30 days before attempting to record a notice of default. Cal. Civ. Code § 2923.5(a)(1)(A).

The law also prohibits a mortgage servicer, beneficiary, or trustee from recording a notice of default if the trustor/borrower has submitted a completed application for a first lien loan modification until the trustor/borrower has been provided a written determination of your application. Cal. Civ. Code § 2924.18(a)(1).

Record Notice of Default

After contacting the trustor concerning your financial circumstances in the manner described above, a beneficiary or trustee may record a notice of default in the county where the property is located to begin the process of nonjudicial sale. Cal. Civ. Code § 2924(a)(1). For residential property of no more than four units, the trustee or beneficiary must also provide to the trustor a summary of the notice of default and notice of the sale in English and other languages specified by statute. Cal. Civ. Code § 2923.3.

Notice of Sale if Default Not Cured

Three months after the notice of default is recorded, the trustee must give at least 20 days notice of the sale of the secured property. Cal. Civ. Code §§ 2924(a)(2), 2924f. The notice of sale must be posted conspicuously on the property, posted in a public place in the city where the property is located, and published in newspapers at least 20 days before the date of the sale of the property. Cal. Civ. Code § 2924f.

California law provides borrowers/trustors with the statutory right to reinstate defaulted loans. Cal. Civ. Code § 2924c(a)(1). Broadly speaking, this means that a borrower has until five days before the foreclosure sale to pay the amount in default plus other fees, such as interest, penalties, and costs of providing notice to the borrower, assessed by the lender/beneficiary. The lender (or its servicer) is required to provide the borrower with a “beneficiary statement,” which contains information on how much must be paid in order to reinstate the loan. Cal. Civ. Code § 2943.

In the event that a trustor (or borrower) defaults on the payments owed under the note, a beneficiary (or creditor) holding a deed of trust generally has three legal options to enforce his rights. The beneficiary can: (i) sue to enforce the note obligation by bringing an action to collect on the debt; (ii) seek judicial foreclosure of the property securing the debt; or (iii) have the trustee exercise its power of sale, if such power is expressly granted in the deed of trust. The timeframe in which a beneficiary can exercise these options (the “statute of limitations”) differs.

Suit for Nonpayment

In the event of default, a lender can file a lawsuit to force repayment of the obligation evidenced by a promissory note underlying a deed of trust. In other words, the creditor can sue the borrower for breach of contract. The statute of limitations for a breach of contract claim is four years. Cal. Code Civ. Proc. § 337. As such, after four years a creditor is barred from suing a debtor on the grounds that the debtor signed a promissory note containing an obligation to pay the creditor. This four year statute of limitations period begins once the cause of action accrues, or, at the time the debtor breaches the obligation by, for example, missing a payment. Cal. Code Civ. Proc. § 312; Spear v. Cal. State Auto Assn., 2 Cal. 4^th 1035, 1042 (Sup. Ct. 1992) (“A contract cause of action does not accrue until the contract has been breached.”).

Judicial Foreclosure

A lender may also institute an action in court to foreclose on the property. Similar to a suit for nonpayment or breach of contract, a creditor is barred from bringing an action to compel a judicial sale of a debtor’s property (a judicial foreclosure) after four years from the date a claim to collect on a debt accrues. Cal. Civil Code § 2911; Cal. Code Civ. Proc. § 725a. A debtor is sometimes entitled to redeem the property after a judicial sale under certain conditions. See generally 5-124 California Real Estate Law and Practice §§ 124.30-124.40.

Nonjudicial Foreclosure – Exercising Power of Sale

If a power of sale clause is expressly contained in the terms of the deed of trust, then the trustee, on behalf of a beneficiary, may exercise its power of sale even after the statute of limitations to collect on the underlying debt is barred. See e.g., Summers v. Hallam Cooley Enterprises, Ltd., 56 Cal. App. 2d 112, 113-14 (4th Dist. 1942) (“the power of sale under a trust deed may be exercised after an action on the note is barred.”); See also Carson Redevelopment Agency v. Adam, 136 Cal. App. 3d 608, 610 (2d Dist. 1982) (“The running of the statute of limitations on the note underlying . . . [a] deed of trust clearly bars an action to enforce the note itself and an action for judicial foreclosure. . . . However, it is equally well settled that the power of sale under a deed of trust is not barred, or never outlaws, and that the power of sale may be exercised by the trustee who holds the title even though the statute of limitations has barred any action on the underlying note.”) (Internal citations and quotations omitted.)

In 1982, with the passage of the Marketable Record Title Act (MRTA) (codified as Cal. Civ. Code § 882.020 et seq.), the legislature changed the common law rule that the power of sale under a deed of trust “never outlaws,” or never expires. Instead, under the MRTA, a creditor (through its trustee) may exercise its power of sale at any time before the final maturity date of the obligation and for ten years after the maturity date included in the record. Cal. Civ. Code § 882.020(a)(1). If the record contains no maturity date, then the creditor has 60 years from the date the instrument was recorded to exercise the power of sale. Cal. Civ. Code § 882.020(a)(2).^[1]

Note that unlike a judicial foreclosure, a creditor generally has no right to a deficiency judgment after a nonjudicial sale (see generally 5-120 California Real Estate Law & Practice §§ 120.22, 120.23) and also that a debtor is generally not entitled to redeem after a nonjudicial sale. Id. at §120.23.

In sum, although a beneficiary is barred from enforcing the note underlying its deed of trust and pursuing a foreclosure action in court, it can still choose, at any time up to either 10 years after the maturity date or, if no maturity date is included in the record, 60 years after recordation of the deed of trust, to compel a curing of the default and if it does not receive that repayment, elect to sell the property. Moreover, even if the beneficiary never exercises any of its rights with respect to its security interest, its claim will cloud title to the property until the expiration of the terms defined by the MRTA. This could adversely impact future sales or attempts to obtain other financing using the property as collateral.

[1] The wording of Cal. Civ. Code § 882.020 creates ambiguity because it refers to a time limit upon enforcement of “the lien of a mortgage, deed of trust, or other instrument” despite the fact that the need for the statute arose because the power of sale was considered something other than a lien and therefore never “outlawed.” As a result of this ambiguity, different appellate courts have reached opposing conclusions concerning the meaning and application of the statute. Compare Ung v. Koehler, 135 Cal. App. 4^th 186 (1^st App. Dist. 2005) (finding entitlement to 60 year statute of limitations remained even after filing a notice of default containing a maturity date on the loan) with Slintak v. Buckeye Retirement Co., L.L.C., 139 Cal. App. 4th 575 (2d App. Dist. 2006) (finding the filing of a notice of default containing a maturity date triggers the 10-year statute of limitations). Although the 2006 amendment to Cal. Civ. Code § 882.020 did not clarify things, it is unlikely that this issue will have any bearing on the specific issues the you faces and as such, a thorough analysis has not been undertaken.