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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.

Courtside Newsletter February 2012: A CLOSER LOOK AT DRE AND LICENSE REGULATIONS AFFECTED BY SENATE BILL 53

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January 18-21, 2012 the California Association of REALTORS® held its annual Winter Business Meetings in Indian Wells. During the Legal Affairs Forum, numerous new laws discussed, including some that have been discussed in past articles of the Courtside Newsletter. One Senate Bill that seemed particularly important is Senate Bill 53, which discusses, in detail, California Department of Real Estate and License Regulations.

It is important to recognize the implications behind the Real Estate Law that SB 53 addresses. The Real Estate Law provides for the regulation and licensure of real estate brokers and salespersons by the Real Estate Commissioner. Any person who willfully violates or knowingly participates in a violation of the Law’s provisions may be guilty of a crime.

As it currently stands, the law allows the Commissioner—either by his or her own motion or upon the submission of a verified Complaint—to investigate the actions of a licensee who has engaged in specified acts. Those acts are listed in Business and Professions Code Section 10176 (a-n) and include such things as making substantial concealment or misrepresentations of material facts; making false promises of a character that is likely to induce, influence or persuade; unlawful discrimination; acting for more than one party in a transaction without the knowledge or consent of all parties; and conduct that constitutes fraud or dishonest dealing. If the licensee is found to have committed the actions outlined in Business and Professions Code Section 10176, the Commissioner can revoke or suspend the licensee’s license or impose a monetary penalty.

The current language of Business and Professions Code Section 10177 will become inoperative as of July 1, 2012 and repealed as of January 1, 2013. Instead, new language will be added under Business and Professions Code Section 10177, effective July 1, 2012, to allow the Commissioner to suspend or revoke the license of a real estate licensee, delay the renewal of a license, or deny the issuance of a license to an applicant pursuant to the terms outlined in Business and Professions Code Section 10177 (a-q). Some of the conditions listed in Section 10177 include but are not limited to whether a licensee or applicant has entered a plea of guilty or nolo contendere (no contest) to, been found guilty of, or been convicted of a felony or a crime substantially related to the duties of a real estate licensee; whether the licensee willfully used the term “realtor” or a trade name or insignia of a membership in a real estate organization of which the licensee is not a member; whether a licensee has demonstrated negligence or incompetence in performing an act for which he or she is required to have a license; and whether the licensee engaged in any conduct that constitutes fraud or dishonest dealing. If a corporation’s officer, director, or person owning or controlling 10 percent of the corporation’s stock has violated any of the aforementioned conditions, the Real Estate Commissioner may suspend or revoke the license of the corporation, delay the renewal of a license of the corporation, or deny the issuance of a license to the corporation. These conditions will become effective on July 1, 2012.

SB 53 will also amend Business and Professions Code Section 10080.9. The amended Code will allow the Commissioner to issue citations to unlicensed persons that he or she believes to be performing acts for which a license would be required, as well as against licensees who are in violation of the Real Estate Law or any of its rules. The citations would include an order to correct the violation and could impose an administrative fine of up to $2,500. Any money collected from the citations would be placed into the Recovery Account of the Real Estate Fund. If the licensee or unlicensed person wants to contest the citation, they must inform the Commissioner within thirty days of the date of the citation. After that time has passed, the citation or citation and fine becomes final.

Additionally, should a licensee fail to obey a subpoena issued for the production of documents, SB 53, through changes to Business and Professions Code Section 10079, will allow the Real Estate Commissioner to apply to the Superior Court, (through a noticed motion), for an Order requiring the licensee or a designated representative of the licensee to appear at Court with the requested documents. Failure to obey this Order would be considered contempt of Court.

Effective July 1, 2012, the current Business and Professions Code Section 10156.2 will become inoperative. A “new” Section 10156.2 will be added in its stead, which will be effective beginning July 1, 2012. Currently, the Code Section addresses a licensee’s application for renewal of his or her license. If the application is filed before midnight of the last day of the period for which the license was issued, along with the fee and good faith evidence of compliance with Article 2.5, then the applicant can continue to operate under his or her existing license (so long as it wasn’t previously suspended or revoked). The language of this portion of Section 10156.2 does not change, nor does the language with regards to the Commissioner’s ability to advise or reprimand those licensees who are not in compliance with the education requirements. The only language that does change, in fact, is that the Section now states “nothing in this section shall prevent the Commissioner from delaying the renewal of the license of a licensee pursuant to Section 10177.”

Currently, real estate brokers are required to indicate in their transaction files the provisions of law pertaining to securities qualifications or exemption from securities qualifications under which their transactions are being conducted. Real estate brokers are also required to file certain information with the Real Estate Commissioner relative to conducting those transactions that are exempt from qualification. Through changes to Business and Professions Code Sections 10236.7, 10237, and 10238, real estate brokers will now be required to submit a copy of the information in their transaction files to any investors from whom the brokers obtain funds in connection with the transaction within 10 days of receipt of those funds. Further, a form notice will need to be filed with the Real Estate Commissioner within 30 days after the first transaction and within 30 days of any material change in any information that is required in the notice. That form can be found in Section 10238. Any willful violation of the provisions in these Code Sections will be considered a crime.

Lastly, Senate Bill 53 provides the Real Estate Commissioner with access to a person’s records and the Department of Motor Vehicles for the purpose of enforcing specific provisions of the Real Estate Law or Subdivided Lands Law (Vehicle Code Section 1808.51).

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Courtside Newsletter January 2012: N.A.R. MAKES CHANGES TO THE CODE OF ETHICS AND MODEL MLS RULES AND REGULATIONS – A BRIEF SUMMARY OF SOME ANNUAL MODIFICATIONS

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CODE OF ETHICS

As with any new year, there are always changes. This year is no different. Some important changes to the National Association of REALTORS®Code of Ethics and Standards of Practice should be noted. This guide outlines REALTORS®’ revised duties to their clients, customers, the public, and other REALTORS®.

Changes were made throughout the Code to eliminate the term “competitor” and instead replace it with the broader term “real estate professionals.” Specifically, this change is reflected in Article 15, Standard of Practice 15-2, and Standard of Practice 15-3. Article 15 now states, “REALTORS® shall not know knowingly or recklessly make false or misleading statements about other real estate professionals, their businesses or their business practices.” Standard of Practice 15-2 states:

“The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses, and their business practices includes the duty to not knowingly or recklessly publish, repeat, retransmit, or republish false or misleading statements made by others. This duty applies whether false or misleading statements are repeated in person, in writing, by technological means (e.g., the Internet), or by any other means.”

Lastly, Standard of Practice 15-3 is amended to state, “The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses, and their business practices includes the duty to publish a clarification about or to remove statements made by others on electronic media the REALTOR® controls once the REALTOR® knows the statement is false or misleading.”

Further changes were made to Article 17 regarding mediation of disputes. In contractual (as well as certain non-contractual) disputes, the Association governing those disputes can require the disputing parties to mediate prior to submitting the matter to arbitration. The Article goes on to afford the clients of REALTORS® the opportunity to mediate in accordance with the Association’s legal policies. In the past, NAR required the boards and associations to offer mediation to the members, but participation remained voluntary. With the amendment to Article 17, local boards and associations would be able to require mediation prior to arbitration, if the Board of Directors and/or the membership authorizes it.

However, a provision has been added to Standard of Practice 17-2 to state that “Article 17-2 does not require REALTORS® to mediate…when all parties to the dispute advise the Board in writing that they choose not to mediate through the Board’s facilities.” The new language does not relieve REALTORS® of their duty to arbitrate but rather correlates with the already existing language in 17-2. Standard of Practice 17-2 continues to state that Article 17 does not require parties to arbitrate when all parties advise the Board (in writing) that they choose not to arbitrate before the Board.

Lastly, a new Standard of Practice has been added to Article 1 of the Code of Ethics. Standard of Practice 1-16 outlines, in no unspecific terms, that REALTORS® are not to access or use, or permit others to access or use, a listed or managed property on any terms or conditions that are not authorized by the owner or seller. This authorization should be in writing.

Any questions regarding the changes to the Code of Ethics or with compliance in general should be directed to the appropriate Board or to qualified legal counsel.

MODEL MLS RULES AND REGULATIONS

In November 2011, the National Association of REALTORS® Board of Directors met at the REALTOR® Conference and Expo in Anaheim to discuss changes to the Model MLS Rules and Regulations. As of the first of this year, those changes came into effect, many of which are mandatory on the local MLS in order to maintain compliance with existing, already-mandatory policies and to ensure coverage under the National Association master professional liability insurance policy.

One of the more controversial changes, it seems, is the deletion of Section 18.2.10, as well as the deletion of language in Policy Statement 7.58. Both regard Internet Data Exchange (IDX) listings on franchisor’s websites, which gave further rise to questions about social media and IDX. The Board of Directors opted to rescind the language about IDX and franchisors and, according to Robert Freedman at REALTOR.org, “a work group has been tasked to broaden the policy to address listing displays over mobile device and via social media.

Other changes to the MLS Rules and Regulations include an increase in the maximum security deposit that Associations and MLSs can require for lockboxes. Previously, Policy Statement 7.31 stated “the initial deposit shall not be less than $25 nor more than $200.” The maximum figure has now gone up to $300 in order to continue to “establish an awareness of personal liability for such key.” This change in the lockbox deposit amount is also one of the mandatory changes implemented by the National Association of REALTORS®.

Section 2.5, Report Sales to the Service, was amended to include sale prices as part of the status changes that are reported to the multiple listing service by either the listing or cooperating broker. Additional “notes” were added to the section to address the differences in disclosure states and indicates where sale prices of completed transactions are not accessible. In states where complete transactions are not accessible, failure to report sales or sale prices is subject to disciplinary action if the MLS (1) categorizes the sale price information as confidential, and (2) limits the use of sale price information to specific subscribers, participants, customers, clients and governmental bodies (as detailed in Section 2.5). Further, with regards to Virtual Office Websites (VOWs), sale prices are considered confidential in states where actual sale prices of completed transactions are not a part of public records.

Policy Statement 7.75, Reporting Sales to the MLS, follows the same vein as Section 2.5 by including sale prices in the information that must be reported. The notes regarding “disclosure” and “nondisclosure” states also contain the same language as that in Section 2.5.

Policy Statement 7.97 was also adopted by the directors. This section give MLSs discretion to requires participants to disclose if a listed property is bank-owned, real estate owned, or a foreclosure.

It is important to be aware of these changes and be on the lookout for any changes in any local MLS Rules and Regulations. Each Association and/or MLS will announce the specific changes to its MLS. All Associations within CARETS affiliated MLS’ utilize a uniform set of rules. Keep an eye on future Courtside Newsletters or check out our Facebook for updates.

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Courtside Newsletter December 2011: WARNING TO EMPLOYERS: NEW 2012 EMPLOYMENT LAWS

SB 459: Misclassification of Independent Contractors

Senate Bill 459 amends the California Labor Code, Section 226.8, to prohibit the willful misclassification of an individual as an independent contractor. “Willful misclassification” is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The bill prohibits charging individuals who have been mischaracterized as independent contractors a fee or making deductions from compensation that would have violated the law if the individuals had not been misclassified.

To reflect the seriousness of willfully misclassifying an employee, if the Labor and Workforce Development Agency or a court determines that a violation has taken place, the penalty is $5,000 per incident. If the violator has a pattern or practice of willfully misclassifying employees, the penalty will be no less than $10,000 and could go up to $25,000. The violator will also be ordered to post a notice signed by an officer for one year that states: (1) what the violation was, (2) that their business practices have been changed to avoid committing further violations, (3) that employees who believe they are misclassified may contact the Labor and Workforce Development Agency, and (4) that the notice is posted pursuant to State order. A licensed contractor who is found to have violated Section 226.8 will be reported to the Contractors’ State License Board for disciplinary action.

Additionally, any person who knowingly advises an employer to treat an individual as an independent contractor to avoid employee status may be jointly and severally liable with the employer if the individual is found not to be an independent contractor.

AB 469: Wage Theft Protection Act of 2011

Effective January 1, 2012, Assembly Bill 469 added Section 2810.5 to the California Labor Code, Wage Theft Prevention Act of 2011. Employers are now required to provide non-exempt employees with written notice at the time of hire containing the following specific wage-related and employer information:

1. The rate or rates of pay, the basis for the rate, and whether it is paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime.
2. Any allowances claimed as part of the minimum wage, including meal or lodging allowances.
3. The regular payday.
4. The name of the employer, including any “doing business as” names used by the employer.
5. The physical address of the employer’s main office or principal place of business and a mailing address, if different.
6. The telephone number of the employer.
7. The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
8. Any other information the Labor Commissioner deems material and necessary.

If any changes are made to this information non-exempt employees must be notified in writing within seven calendar days of change.

The Act also increasess civil penalties for wage violations, such as employers paying less than minimum wage, and increases the statute of limitations. The full text of the Act can be found on the Department of Industrial Relations’ website. The Labor Commissioner is developing a guide/FAQ for employer compliance that should be available this month. It will be found at : http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html

SB 272: Leaves of Absence for Organ and Bone Marrow Donation

Senate Bill 272 amends Labor Code Section 1510 current law regarding leaves of absence for employees who donate an organ or bone marrow to another person. Current law provides a leave of absence for an organ donor of 30 days within a one-year period and a leave of absence for a bone marrow donor of five days within a one-year period. SB 272 clarifies that those are “calendar days” not “business days” and that the one-year time period will begin on the first day of the employee’s leave. The leave of absence will not be considered a break in the employee’s continuous service for the purposes of the right to time off. The employee will still be entitled to coverage under a group health plan. The employer retains its right to negotiate an employee benefit plan that will be better than an existing plan and no rights provided under Section 1510 will be diminished by an employee benefit plan entered into on or after January 1, 2011. The employer may require the employee take up to five days of earned but unused sick leave, vacation, or paid time off for bone marrow donation, or up to two-weeks of earned but unused sick leave, vacation, or paid time off for organ donation. The employee’s leave for donation cannot be taken concurrently with any other leave taken pursuant to the federal Family and Medical Leave Act of 1993 or the Moore-Brown-Roberti Family Rights Act. The leave can, however, be taken in one or more periods, but still cannot exceed the time allotted.

SB 299: Pregnancy Disability Leave

Under current law, it is unlawful for employers to discriminate based on sex or disability or to refuse to allow a female employee disabled by pregnancy, childbirth, or a related medical condition to take a reasonable leave of absence for said conditions. SB 299 amends California Government Code Section 12945 to include that it is also unlawful for an employer to refuse to maintain and pay for coverage under a group health plan for eligible female employees who take leave. However, the premium paid by the employer can be recovered from the employee if: (1) the employee fails to return to work after the term of the leave that the employee is entitled to expires; or (2) the employee fails to return from leave for a reason other than they are on leave under the Moore-Brown-Roberti Family Rights Act; or (3) if the employee is entitled to additional leave due to continuation, recurrence, or onset of a health condition. The amendment makes it unlawful to refuse to accommodate an employee for a condition related to pregnancy, childbirth, or a related condition if she requests the accommodation based on the advice of her healthcare provider.

AB 551: Penalties for Contractor’s Violation of Labor Code

Assembly Bill 551 amends several sections of the Labor Code to increase penalties for violations of various Labor Code provisions regulating contractors and subcontractors on public works contracts.

Section 1775 is amended regarding failure to pay minimum wages: The penalties are increased for contractors and subcontractors who pay less than the minimum per diem wage to their employees. Under existing law, the penalty is $10 to $50 per calendar day. Effective January 1, 2012, the penalty will be $40 to $200 per calendar day. The penalty is determined by the Labor Commissioner based on: (1) whether the employer intended not to pay per diem wage or whether it was a good faith mistake that was promptly rectified, and (2) whether the employer has a prior record of failing to meet prevailing wage obligations. If the employee was employed by a subcontractor, the prime contractor will not be liable for the penalties if the prime contractor: (1) had no knowledge of the subcontractor’s failure to pay prevailing wages; and (2) attempted to take corrective action once becoming aware of the subcontractor’s discrepancy.

Section 1776 is amended regarding contractor and subcontractor payroll records and the inspection of said records. The penalty for not complying with a written request for payroll records within 10 days is $100 each calendar day the contractor or subcontractor is delinquent.

Section 1777.1 is amended to provide that a contractor or subcontractor who is in violation will be unable to bid or perform work on a public works project for a minimum of one year or a maximum of three years. If payroll records are not produced within 30 days of a written request, in addition to the per diem fine, the contractor or subcontractor may be subject to debarment.