By: Ryan D. Miller
Riverside County Office
Last July, our newsletter article focused on the Garcia case, where a lender promised not to foreclose, but did anyway. The borrower was able to maintain a lawsuit against the lender because as the borrowers relied upon the lender’s promise, to their detriment. In January of this year, our newsletter article focused on the landmark case in the Massachusetts Supreme Court, also related to overcoming foreclosure. Recently there was another case in the California Courts of Appeal, 2nd District, Aceves v. U.S. Bank, N.A., Cal. App. 2d Dist. Jan. 27, 2011, where another homeowner was successful at maintaining a lawsuit against a lender for allegations of fraud and promissory estoppel.
While the cases illustrate that lenders often violate laws in pursuing non-judicial foreclosures, many do not know that in order to even bring a wrongful foreclosure case, the borrower likely must first offer to tender the full amount of the loan, where the trustee’s sale already occurred, or cure any default, where the trustee’s sale has not yet occurred, in order to get a court to set aside a foreclosure sale. This “tender rule” is not limited to cases where the homeowner seeks to set aside a foreclosure sale, cancellation of a trustee’s deed or quiet title. It is also applied to causes of action related to a foreclosure, including negligence and fraud.
The tender rule was set forth in Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575,579-580. It is based on the notion that one who seeks to set aside the foreclosure sale must first comply with any requirements they are obligated to first. This rule tends to be the biggest hurdle for the wrongfully foreclosed to fight against wrongful foreclosures, and it is a big hurdle. If borrowers had the money to tender to the lender, they would not need a loan in the first place. Additionally, if a borrower could get a loan through another lender, they could use that money to tender. However, once a borrower is in default, their credit is such that they can no longer obtain additional financing.
There are ways around the tender rule. One of the most successful ways to avoid having to tender the entire amount of the loan is to show that because the lender lacked the authority to foreclose, the sale was void. Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868, 876. That means the trustee’s sale was a complete nullity with no force or effect as opposed to one which may be set aside. Indeed some cases have held that it is not “equitable” nor does it make sense to require a homeowner to tender the amounts owing because of a lender’s actions. One can certainly see the problems that could arise with a rogue lender wrongfully foreclosing, where the borrowers were helpless to fight the foreclosure because they could not tender the full amount of the loan.
Other cases have held that notice defects void a trustee’s sale so tender would not be required. Bank of America, N.A. v. La Jolla Group II (2005) 129 Cal.App.4th 706, 715-716 and Little v. CFS Service Corp. (1987) 188 Cal.App.3d
However, despite these decisions, local courts have sometimes been reluctant to entertain these arguments. I speculate that the reason for this reluctance is that many homeowners filed wrongful foreclosure actions against the lender, when they had no basis for doing so, simply to stay in the home one more month. It is possible that the courts want to discourage this type of behavior, and therefore require tender.
Additionally, I have seen that where a homeowner has the ability to pay all arrears, the court seems more likely to allow a wrongful foreclosure action. And usually, it is more persuasive to the court if a homeowner can provide proof of their ability to pay all arrears, fees, etc. Additionally, when an unlawful detainer is also pending, the court may ask that the homeowner provide a bond, in the event the homeowner loses and must pay the fair rental value of the foreclosed-upon home.
When a lender’s actions are egregious and fraudulent activity is apparent, a court may not focus so much on the tender rule. However, when the facts come short of showing fraud, the tender rule may bar the average homeowner from pursuing a wrongful foreclosure case.
A foreclosed upon homeowner should consider the tender rule before committing to the time and expense associated with a lawsuit. Additionally, if a lender is engaged in conduct that is obviously fraudulent, a foreclosed upon homeowner should know they should not have to tender the full amount of the loan.