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JUNE 2012: NEW REAL ESTATE CASES DECIDED BY THE CALIFORNIA COURTS OF APPEAL: PART TWO

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In May’s Courtside Newsletter, I discussed two recent cases decided by the California Courts of Appeal that will impact practices in the real estate field. This month will be a continuance of that theme.

The first case is Glen Oaks Estates Homeowners Association v. Re/Max Premier Properties, Inc., et al., which clarifies who has the ability to bring a lawsuit against REALTORS®. In 2005, Glen Oak Estates, located in Pasadena, experienced a landslide along its common slope area and common driveway. As a result of the landslide, in 2007 a lawsuit was filed against the HOA for negligence (DePaul v. Glenoaks Estates Homeowners Association). The HOA counter-sued the developers for indemnity and contribution. During this lawsuit, documents were produced by the developers, which lead to the instant action, Glen Oaks Estates HOA v. Re/Max. In the transactions with Glen Oaks Estates, the REALTORS® were acting as dual agents, both for the sellers/developers, and for the buyers/HOA members who purchased the parcels at Glen Oaks Estates. According to the HOA, the documents that were produced in the DePaul case indicated that the REALTORS® and agents were not acting in the best interests of both the sellers and the buyers. The HOA sued Re/Max Premier Properties, Inc., Dilbeck Realtors GMAC Real Estate, and the agents involved in the Glen Oaks Estates transactions for unfair business practices, breach of fiduciary duty, and intentional misrepresentation.

Based on the documents produced in the DePaul case, the HOA’s complaint alleges that the REALTORS® engaged in unfair business practices by violating the Subdivided Lands Act. The complaint alleged (1) that the REALTORS® failed to provide buyers with a public report regarding the property or other transactional documents prior to the execution of the sales contract; (2) that the REALTORS® engaged in false advertising by failing to disclose, through flyers or other publications, that Glen Oaks Estates was a common interest development subject to the requirements of the Subdivided Lands Act and the regulations of the DRE; and, (3) that Re/Max engaged in unfair business practices by falsely advising developers that the DRE did not require a homeowners association for the Estates and by collaborating with the developers to low-ball the budget.

The HOA further alleged that “the Realtors breached their fiduciary duties to the members of the HOA by failing to provide a final public report, a DRE-approved budget, and other required disclosures and transactional documents pursuant to the Subdivided Lands Act,” failed to investigate the legitimacy of soil reports provided by Pioneer Soils Engineering, Inc., and failed to warn HOA members that the soil reports might not be valid.

Based on these allegations, the HOA claimed that “the HOA members would not have purchased their homes in Glen Oaks Estates had the Realtors acted as proper fiduciaries, not concealed information relating to the budget, warned them about the alleged invalid soil reports and/or complied with the laws required of them to provide a final report and other transactional documents.” However, the reality was that the homes were purchased, a landslide occurred, allegedly due to the misrepresentations and illegitimate soil reports, and the HOA found itself embroiled in third party litigation with damages in excess of 3 million dollars.

When faced with this lawsuit, the REALTORS® demurred to the HOA’s complaint, stating that the HOA did not have grounds to bring the lawsuit since the claims belong to the individual homeowners who purchased the homes in Glen Oaks Estates. The trial court agreed with Defendants, stating that the HOA could not sue the REALTORS®. The HOA appealed, pointing out that under the Davis-Stirling Common Interest Development Act, Section 1368.3 allows for “[a]n association established to manage a common interest development…to institute, defend, settle, and intervene in litigation…in its own name.” The HOA was not alleging that the REALTORS® owed it any specific duties. Instead, the HOA had standing to bring a suit based on alleged breaches of duties that were owed to the Buyers. Since the area damaged by the landslide was “common area” under the Common Interest Development Act Section 1368.3 and the HOA incurred damages as a result thereof, the Court of Appeal found that the HOA did, in fact, have standing to bring a lawsuit against the REALTORS®.

Prior to this ruling, it was thought that homeowners associations could not bring a suit against REALTORS® or real estate agents. However, the court’s interpretation of Civil Code Section 1368.3 (the Davis-Stirling Common Interest Development Act), in this case, redefines the protection afforded to REALTORS® and agents and now enables HOAs to bring suit under certain conditions.

The next case is Lyon & Assoc. v. Superior Court, in which the court “illustrates the perils that real estate brokers and their agents assume when acting as a dual listing agent with duties to both the buyers and sellers of the same house.” The original proceeding arose out of the sale of a home in Rocklin, California. Robert and Denise Costa were the sellers, Ted and Patti Henley were the buyers, and Lyon & Associates (“Lyon”) represented both parties in the transaction. The Costas listed the home in early 2006 with an agent at Lyon. However, the agent became aware of defects and problems with the stucco and paint on the home. Instead of continuing with that agent, the Costas decided to use a different agent at Lyon, Gidal, who continued to list the property. Gidal was present when listing photographs were taken of the property that showed defects in the paint and stucco.

On May 2, 2006, the Henleys signed a buyer-broker agreement giving Lyon the exclusive right to represent them in the transaction. The Agreement affirmed that “a dual agent is obligated to disclose known facts materially affecting the value or desirability of the property to both parties.” Escrow closed on May 9, 2006 and, subsequently, the Henleys began to notice the defects in the property. Allegedly, the defects included water intrusion and efflorescence that extended from the decks to the exterior of the house, causing bubbling, blistering and cracking of the stucco and paint. When the Henleys filed their first amended complaint against the Costas and Lyon in May 2009, they alleged that the Costas knew about these defects but did not disclose them in the sale. Instead, they painted the house a dark brown prior to the Henleys’ inspection so the problems would go unnoticed. Gidel also knew about these problems and failed to disclose.

The buyer-broker agreement signed by the Henleys limits the time to bring an action for breach of the Agreement to two years. Since the Henleys’ action was filed almost three years after the close of escrow, Lyon claimed that they were barred from filing their suit for breach of contract, negligence, fraud, breach of fiduciary duty, and negligent misrepresentation. Lyon relied on California Civil Code Section 2079.4, which imposes the two-year statute of limitations written into the Agreement. However, the Court of Appeal found that section 2079.4 “specifies a statutory duty imposed on seller’s brokers to buyers of residential property.” The Henleys were the buyers of the property; therefore their complaint does not assert claims under section 2079. Further, the Henleys believed that the statute of limitations should be extended by the discovery rule, which begins tolling when the breach was discovered or should have been discovered. According to the complaint, the Henleys began to notice paint blisters at the end of 2006, but only started suspecting the Costas and Lyon in mid-2007. The court agreed with the Henleys, stating that the claim was filed in a timely manner as to all causes of action. “In sum, the buyer-broker agreement’s limitation period is subject to the discovery rule for a breach of contract action alleging active concealment of the breach by the broker.”

As a result of this decision, the California Association of REALTORS® has amended the Buyer Representation Agreements (Exclusive, Non-Exclusive, and Non-Exclusive/Not for Compensation). These forms have been slated for release this month, amongst others.

As a real estate practitioner, it is important to be aware of the duties that are owed and to whom they are owed. Otherwise, one could end up in a situation such as the brokers above. As the court pointed out in Lyon, it is especially harrowing to be a dual agent, thus extra precautions should be taken. As a buyer or seller, it is also important to be aware of your rights and the duties owed to you by your agent or broker. However, whether you are an agent, broker, buyer, or seller, always review the contracts you sign. If you have any questions, seek the advice of qualified legal counsel.

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MAY 2012 NEW REAL ESTATE CASES DECIDED BY THE CALIFORNIA COURTS OF APPEAL: PART ONE

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BY: KELLY A. NEAVEL, ATTORNEY CASEY MCINTOSH, PARALEGAL, researched and contributed to these articles.

There have been four recent cases decided by the California Courts of Appeal that will have an effect on how real estate brokers and agents conduct business. This article will will discuss two of those cases.

In RealPro, Inc. v. Smith, the court took a closer look at the standard Listing Agreement used in the sale of real property. In September 2005, Sellers/Defendants Smith Residual Company, LLC and J&A Gonzales, LLC retained real estate broker MGR Services, Inc. to act as their agent for the sale of real property in Riverside County. A “Standard Owner-Agency Agreement for Sale or Lease of Real Property” was executed, setting forth the sale price and terms of “$17,000,000 cash or such other price and terms agreeable to [Sellers]…” In November 2005, RealPro, Inc., broker for the buyer, submitted a written offer to MGR for the full asking price of $17,000,000 cash. In December, MGR countered that offer, stating that the listing price was being increased to $19,500,000. Both MGR and the Sellers (Defendants) confirmed a brokerage fee of 4% split equally between MGR and RealPro. However, the Counteroffer was rejected by RealPro.

In March 2006, RealPro demanded its 2% brokerage fee for producing a ready, willing, and able buyer. When Sellers refused to pay the brokerage fee, RealPro filed the instant action, wherein the trial “court found that RealPro had ‘failed to allege facts giving rise to the existence of an enforceable written contract for the payment of a real estate commission.’” RealPro appealed the trial court’s decision. The Court of Appeal ultimately agreed with the trial court. According to the Court of Appeal, the confusion centers on the word “or” at Paragraph 1.4(a) of the Listing Agreement. Plaintiff RealPro interpreted the “or” to act as a means of separating the $17,000,000 cash offer from the phrase “such other price and terms acceptable to [Sellers].” Defendants interpreted the “or” to include the phrase “such other price.” With this interpretation, the emphasis is on the “and,” not the “or”: “$17,000,000 cash or such other price and terms agreeable to [Sellers].” The court agreed with Defendants’ interpretation, stating that the presentation of a $17 million cash offer did not obligate the Sellers to enter into a purchase and sales agreement. Further language in the Listing Agreement indicates that Sellers are allowed “to specify price and terms, even outside of the four corners of [the Agreement].” The Court of Appeal concluded that the $17 million was merely an invitation to submit offers. It is an asking price to “guide negotiations.”

RealPro argued that the Listing Agreement contains “language that allows for payment of any commissions simply upon receipt of a full price offer.” The Court disagreed. Sellers pointed out that such language would create a conflict that is not to the mutual benefit of the parties who entered into the Listing Agreement to begin with. “Mutual benefit” is the purpose of a contract. Having to pay a commission for any full price offer that is submitted would create a myriad of problems for the Seller, including: (1) preventing a Seller from accepting any higher offers without still owing a commission to the first broker, (2) creating an obligation for the Seller to pay multiple commissions on multiple offers, and, (3) prospective buyer’s brokers would have no incentive to obtain purchase prices below the listing price because it would jeopardize their commission.

This case reminds real estate agents and brokers to look carefully at the documents they are signing and the contracts they are entering into. From the start of representation, real estate contracts are laced with subtle nuances that often escape many agents’ notice. As a result of this case, the California Association of REALTORS® is considering changing the language of the Listing Agreement in order to make it less ambiguous.

Bank of America, N.A. v. Mitchell addresses California’s antideficiency statutes as a matter of law and how they are affected by the structure of certain loans. In this case, in 2006 GreenPoint Mortgage loaned Defendant Michael Mitchell $315,000 to purchase real property located in Lancaster. The loan was secured by two notes with a first deed of trust and a second deed of trust, both held by GreenPoint. In 2008, Mitchell defaulted on both notes. In 2009, GreenPoint foreclosed on the first deed of trust. Thereafter, GreenPoint assigned the second deed of trust to Bank of America. Bank of America attempted to collect the debt owed under the second deed of trust. However, Mitchell refused to pay, arguing that the second loan was “wiped out” at the foreclosure sale of the first loan. Bank of America initiated this lawsuit for breach of contract based on the second promissory note. The trial court agreed with Mitchell and stated, “the Bank’s…claims seek recovery of the balance owed on the obligation secured by the second deed of trust and, thus, are barred by the antideficiency statutes…” Bank of America appealed, yet the Court of Appeal affirmed the decision of the trial court.

In California, Code of Civil Procedure §580d is part of the antideficiency statutes. It prohibits a creditor from seeking a judgment for a deficiency on all notes “secured by a deed of trust or mortgage upon real property…in any case in which the real property…has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.” This means that the beneficiary of a deed of trust cannot go after the debtor for the deficiency (unless he uses judicial foreclosure).

In its discussion in the Mitchell case, the Court of Appeal analyzed decisions reached in two separate, similar cases, both interpreting Code of Civil Procedure §580d. The Court of Appeal reasoned that GreenPoint would not have been a “sold-out junior lienor” after the foreclosure sale of the first deed of trust because it held both the first and the second deeds of trust at the time of the foreclosure sale. Therefore, it was not entitled to obtain a deficiency judgment. The fact that the junior note was thereafter transferred to Bank of America does not change the fact that a deficiency judgment cannot be obtained. The Bank merely “‘stands in the shoes’ of the assignor, assuming the assignor’s rights and remedies.” Essentially, because GreenPoint was precluded from obtaining the deficiency judgment, Bank of America was also precluded.

What can be taken away from this case is that the structure of the loans at the time of the foreclosure sale will determine whether a second lien holder can pursue a deficiency judgment.

Many homeowners who have been foreclosed upon may find themselves in similar situations where California’s antideficiency statutes can be interpreted in a different way than what they may believe to be true. Here at The Giardinelli Law Group, APC, we find that many people come in, both before and after a foreclosure sale, with knowledge that they have either heard through the rumor mill or read on the internet, which may not be completely correct. If you or someone you know are going through a foreclosure, this case demonstrates the fact that not every situation is cut and dry and each foreclosure or short sale deserves special attention and, potentially, legal expertise.

Look for Part Two of this series in next month’s Courtside Newsletter!

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APRIL 2012 C.A.R. FORMS RELEASE – WHAT TO EXPECT FROM C.A.R. IN THE APRIL AND MAY RELEASES

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BY: JOHN V. GIARDINELLI, ATTORNEY,
CASEY MCINTOSH, PARALEGAL, researched and contributed to these articles.

The California Association of REALTORS® has finalized the forms currently set for release on April 30, 2012, as well as those that will be released in late May.

April Releases
Carbon Monoxide Detector Notice (New)

The Carbon Monoxide Detector Notice is a new disclosure form reflecting California Law that requires that all existing single-family homes have carbon monoxide detectors installed by July 1, 2011. All other dwellings intended for occupancy are to have carbon monoxide detectors installed by January 1, 2013. The latter deadline is intended for duplexes, lodging homes, dormitories, hotels, condos, time-shares, and apartments, among others. The purpose of the new form is to provide the buyer and seller with notice of the new requirements, exceptions to the requirements, and the penalties of non-compliance. It does not disclose if the requirements have been met by the sellers. The form states that sellers of residential 1-4 properties who are required to complete a Transfer Disclosure Statement (TDS), or a Manufactured Home and Mobile home TDS must use section II A of the forms to disclose whether the dwelling has a carbon monoxide detector. Failure to disclose or comply can result in a fine of up to $200. The form should be used as a rick management protection, although it is not mandatory.

Short Sale Addendum (Revised)
The Short Sale Addendum form has been revised to include language regarding cancellation of the California Residential Purchase Agreement, Counter Offer, or other agreement to sell a property via short sale. Pursuant to the existing form, the Short Sale Addendum is contingent upon the Seller’s receipt of and delivery to the Buyer of a Short Sale Lenders’ Consent no later than a the “Short Sale Contingency Date.” The revisions to this section of the form (1A) state that any cancellation of the Agreement prior to the Short Sale Contingency Date “must be pursuant to a right to cancel by the party in the Agreement notwithstanding that time periods in the Agreement have not commenced.” The rest of the form remains the same.

Homeowner Association Information Request:
The Homeowner Association Information Request has been revised from the November 2011 form to now include additional lines for the delivery of CC&Rs and notices of owner violations. The purpose of the Homeowner Association Information Request is to allow the parties to obtain documents from the HOA, (if available), pursuant to California Civil Code Section 1368. After the request is submitted, the HOA, usually through escrow, must provide an estimate of the fees that will be assessed for providing the documents and, within 10 calendar days, provide the requesting party with the items or information requested. The revision to the form now allows the parties to obtain information of CC&Rs and notices of owner violations, in addition to information regarding rentals, insurance, and defects, to name a few. Some of the information is mandated by statute. The form is an excellent and useful worksheet for the members working with properties in HOAs and Planned Unit Developments.

Commercial, Residential Income and Vacant Land Listing Agreement (Revised)
A new Section 6 has been added to the Commercial, Residential Income and Vacant Land Listing Agreement. This section applies specifically to properties listed in the Multiple Listing Service and states that all terms of the transaction will be provided to the MLS for “publication, dissemination and use by persons and entities on terms approved by the MLS.” However, there are also subsections that allow the seller to opt out of internet display of the property or the property address. Should the seller want to display the property on the internet, he or she also has the option to opt out of linking with other MLS Participant and Subscriber websites. What this means is that while the property will show up with on those sites, people searching the internet will not be able to link back to where the property is originally listed and will not be able to see comments or reviews. It is important to note, however, that the seller must opt out using a separate form (C.A.R. form Seller Instruction to Exclude Listing from the Multiple Listing Service or Internet).

Seller Instruction to Exclude Listing from the Multiple Listing Service or Internet (Revised)
The Seller Instruction to Exclude Listing from the Multiple Listing Service or Internet has also been modified. The amount of time to submit an exclusive right to sell and exclusive agency listing for real property or a vacant lot is not longer listed in hours, but has been changed to two (2) days. For those members who are in CRMLS, these are two (2) business days. Under most rule sets weekends and holidays are generally excluded. While the section dealing with the exclusion of a property from the MLS not been changed, it is important to take note that this form has a secondary purpose and can be used by sellers to make sure their property either does not appear on the internet or is not hyperlinked to reviews and comments.

Seller’s Affidavit of Nonforeign Status and/or California Withholding Exemption (Revised)
The November 2006 revision of the Seller’s Affidavit of Nonforeign Status and/or California Withholding Exemption clarifies that a tax identification number (TIN) is necessary, as well as a California Corporation number for those corporations qualified to do business in California. The remainder of the form is the same.

Septic Inspection, Well Inspection, Property Monument and Allocation of Costs Addendum (Revised)
The Septic Inspection, Well Inspection, Property Monument and Allocation of Costs Addendum has been modified to more accurately reflect whether the buyer or the seller will be paying for the costs related inspection and/or repairs to septic tanks, wells, and property monuments. It is anticipated that these revisions will provide for more accuracy as to who is doing what and will hopefully prevent any confusion or future issues.

Addendum (Revised)
The last revised form to be released on April 30, 2012 will be the Addendum. C.A.R. has simply removed the broker signature line. If the broker wishes to sign, he or she may use the prior form or insert his or her signature.

May Releases
The following revised forms will be issued in late May 2012. However, at the time this article was published, C.A.R. has not released a specific date.

Office Management Agreement (New)
The Office Management Agreement is a new form that reflects changes to California Business and Professions Section 10164 that become effective on July 1, 2012. Pursuant to the changes to the Code, (also discussed in our October Courtside Newsletter, “New Laws That May Affect Your Real Estate Business,” which can be found on our website), a broker who appoints a branch manager must do so pursuant to a written contract defining the responsibilities of that manager. There are further requirements, of course, as well as anticipated DRE regulation, but the purpose of C.A.R.’s new form is to provide a basic written contract according to the law. The Agreement contains language defining what offices the manager will oversee, his or her responsibilities, his or her salary, and other topics directly related to employment. It is to be used in conjunction with exhibits relating to internal office policies.

Broker/Associate-Licensee/Assistants Three-Party Agreement (Revised)
Section 5 of the Broker/Associate-Licensee/Assistants Three-Party Agreement has been revised to reflect recent changes in employment classifications. Now entitled “Employee Classification Advisory,” this section addresses the misclassification of independent contractors, stating “the classification of persons as employees or independent contractors is one the areas of the law that is complicated and risky.” The new law on this issue was addressed in our December Courtside Newsletter, “Warning to Employers: New 2012 Employment Laws,” which can be found on our website, www.glawgroupapc.com. The revisions to the Broker/Associate-Licensee/Assistants Three-Party Agreement serve as a warning to signees, letting them know that “independent contractor” has different definitions for different entities and the severe penalties of willful or unintended misclassification. The form also mentions the need to carry workers’ compensation insurance for an assistant.

Personal Assistant Contract (Revised)
The Personal Assistant Contract contains the same language with as the Broker/Associate-Licensee/Assistants Three-Party Agreement with regards to an “Employee Classification Advisory.”

It is important to seek the advice of competent legal counsel if any of the new forms are confusing or you have any questions whatsoever. It is always better to be safe than sorry.

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Courtside Newsletter March 2012: COURT DECISIONS COULD HELP OR HINDER HOMEOWNERS IN DISTRESS

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HOW RECENT COURT DECISIONS MAY EFFECT FORECLOSURES

Two recent court decisions may affect the way foreclosures, and loan modifications are conducted in the future. One case brings hope for California homeowners who are victims of predatory stated income loans. The other case clarifies that acceptance of trial period payments by homeowners does not create a loan modify agreement or prevent the lender from foreclosing.

The Lona v. Citibank, N.A. ruling was favorable to homeowners in distress. Mr. Lona was a mushroom farm mechanic, had limited English fluency, had an 8th grade education, and earned $3,333.00 a month. He responded to a “marketing enticement” by First Net Mortgage and refinanced his home in January 2007 with a “stated income loan” (the borrower states his gross monthly income, which is sometimes unscrupulously increased by the loan broker). The new loan raised his mortgage debt from $1.24 million to $1.5 million, and his new monthly payment was $12,381.36. The home was sold at a nonjudicial foreclosure sale in August 2008. The case did not discuss how Lona originally acquired the property.

Lona sued Citibank (the lender), EMC (the loan servicer) and the mortgage broker to set aside the trustee’s sale claiming that he was a victim of predatory lending. Lona alleged the transaction was invalid because the loan broker ignored his inability to repay the loan and he did not understand the transaction, which was entirely in English and he had limited English fluency, little education, and modest income. The Superior Court granted Citibank and EMC’s summary judgment motion which argued no triable issues of material fact existed for setting aside the trustee’s sale because (1) Lona failed to meet the tender requirements (offer to pay the full amount of the debt which would have postponed the trustee’s sale); (2) Lona voluntarily entered into the loan; and (3) Lona failed to demonstrate any irregularity in connection with the trustee’s sale. Lona appealed.

The Appellate Court found that Lona was exempt from the tender requirement, no irregularities existed in the foreclosure sale, and Lona had presented evidence that was not addressed by Citibank and EMC of unconscionability (unequal bargaining power, overly harsh, one-sided results). The loan documents were standard forms drafted by the lender and presented to Lona for signature and he had no role in negotiating the terms, which included potential increased interest rates and a balloon payment that were not explained to Lona and which he would not be able to pay. The extreme disparity between the monthly loan payment and Lona’s income created a triable issue whether the loans were overly harsh and one sided.

This ruling indicates that courts are taking a closer look at the way refinancing is was conducted, rather than merely at whether the lender and/or loan servicer conducted the foreclosure lawfully.

In Nungaray v. Litton Loan Servicing, LP, the ruling was not favorable to homeowners in distress. The Nungarays refinanced their home in Simi Valley in March 2006 through Bank of America (Bank). Litton Loan Servicing (Litton) serviced the loan. In January 2009, the Nungarays were delinquent and the Bank recorded a notice of default. The Notice of Trustee’s Sale was recorded and sale was set for April 29, 2009. In May 2009, the Nungarays employed a business entity to negotiate and obtain a loan modification. On July 3, 2009, the Nungarays executed a document titled “Loan Workout Plan (Step One of Two-Step Documentation Process)” for the Bank’s review. Although the Bank accepted reduced mortgage payments under the Plan, the Bank and Litton never executed the Plan.

The requirements of the Plan included the Nungarays make four “Trial Period Payments” and provide documentation of their income, financial information, and a hardship affidavit. If the Nungarays were in compliance with the Plan, the Bank would provide them a Loan Modification Agreement to sign and return two copies. If they qualified for the “Offer,” the Bank would send them a signed copy of the Plan. If they did not qualify for the Offer, the Bank would send them a written notice of disqualification. The Plan would not take effect until both the Nungarays and the Bank signed it and the Bank provided them with a copy signed by the Bank. The Bank would suspend, but not dismiss, the foreclosure action so long as the Nungarays continued to meet all the Plan obligations. If the Bank did not provide them the fully executed copy of the Plan and the Modification Agreement before the Modification Effective Date, the loan documents would not be modified; the Plan would terminate; and the foreclosure would immediately resume at the point it was suspended. The Plan included the following statements: “I understand that the Plan is not a modification of the Loan Documents …” and “I … agree that the Lender will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any one of the requirements under this Plan.”

The Nungarays provided financial information through their attorney in response to three letters requesting specific documents and in a telephone call. The Nungarays made four payments; however, Litton returned two of them, the first for failure to include required financial information. The Nungarays failed to provide the Bank with all of the required financial information. The Nungarays claimed they did not receive notice that information was missing. On November 1, 2009, the Bank gave notice that the Plan was terminated. On November 10, 2009, the Bank purchased the home at a non-judicial foreclosure sale.

In January 2012, the Nungarays brought an action against Litton and the Bank alleging breach of contract, negligence and quiet title. They claimed that the foreclosure sale and eviction were improper, because they had entered into a loan modification agreement. The Court granted the defendants’ Motion for Summary Judgment stating, “[T]he Plan was not an enforceable agreement requiring defendants to enter into a loan modification because it ‘was expressly contingent upon a number of factors which never came to fruition.’”

On appeal, the Nungarays made two arguments: They contended the Plan was an enforceable loan modification, because the Bank and Litton partly performed by accepting the trial period payments and acknowledged the existence of the Plan in their court pleadings; therefore principles of equitable estoppel apply (a legal principle that bars a party from denying or alleging a certain fact due to that party’s conduct, allegation, or denial). The Court disagreed finding there was plain and clear language in the Plan that it was not a loan modification; the Plan was not executed by the Bank or Litton; and equitable estoppel does not apply because the Nungarays were not led to believe that a permanent loan modification was forthcoming.

The Nungarays also contended that Litton and the Bank violated the “one-form-of-action rule” by retaining and applying the Nungarays’ payments against the mortgage. California Code of Civil Procedure, Section 726, provides there can only be one form of action for the recovery of a debt or the enforcement of any right secured by a mortgage upon real property. Those seeking to collect a debt must select one collection method against a delinquent owner. If a creditor forecloses on an owner and discovers there is no equity in the property, the creditor cannot then bring a lawsuit to recover the deficiency. Again, the Court disagreed and found that the rule did not apply to the circumstances in the case, that the Bank did not pursue the Nungarays’ assets prior to the foreclosure. “We do not consider the payments a setoff manifesting an election to not foreclose pursuant to the one-form-of-action rule…” and that money paid as part of a forbearance agreement did not invoke the rule.

This ruling emphasizes the importance of reading a document and obtaining legal advice from a reputable attorney to ensure a clear understanding of the terms before you rely on it or sign it.

BY: SYLVIA J. SIMMONS, ATTORNEY
CASEY MCINTOSH, PARALEGAL, researched and contributed to these articles.