Cal. Appeals Court: No Bond Required To Stall F'closure Where Lender Violates State Statute Requiring It To Contact Borrower Before Declaring Default

In Sacramento County, California, Metropolitan News Network reports:

• A homeowner facing foreclosure is not required to post a bond in order to forestall a trustee’s sale where the lender has violated a recent statute requiring that it contact the borrower about possible alternatives, the Third District Court of Appeal has ruled.



• The court Thursday reinstated an injunction that bars J.P. Morgan Chase from foreclosing on a home in the Sacramento County community of Orangevale. The homeowners, Brenda and Matt Bardasian, bought their home in 2005 but fell $100,000 behind in the payments—the loan was for nearly $614,000—and the bank sought to foreclose.



• The Badasians, represented by Sacramento’s United Law Center, sued the bank and the mortgage servicer, and moved for a preliminary injunction under Civil Code Sec. 2923.5. The statute requires a lender, prior to the issuance of a notice of default, to contact the borrower by phone or in person, assess their financial condition, and discuss alternatives to foreclosure.



• Sacramento Superior Court Judge David I. Brown found that the statute had not been complied with, and granted an injunction barring the trustee’s sale from going forward until the defendants complied. But he found that it would be “inequitable to allow [the Bardasians] to continue to live in the house for free” and ordered them to post $20,000 bond and pay the lender $500 per month until the case was concluded.



• The bond was not posted, and the judge granted the lender’s motion to dissolve the injunction. The Court of Appeal, however, granted a stay while the order was appealed. Justice Ronald Robie, writing for the court, said that once the trial judge determined that the lender had violated the statute, it was an abuse of discretion to require a bond.



• The purpose of a bond or undertaking for a preliminary injunction, the justice explained, is to protect the defendant from damages it might suffer if it prevails on the merits.



• Here, however, there was no such possibility because the judge ruled that the defendants violated the statute, rejecting their substantive defenses—that a loan modification in 2007 contained adequate notice, and that adequate notice was contained in a form attached to the notice of default, Robie said.



• The trial judge, he pointed out, determined that the defendants were “not telling the truth” about alleged compliance by a previous mortgage servicer, crediting Brenda Bardasian’s declaration to the contrary. “Such compliance was the only issue in this suit,” Robie wrote. “Because it ruled on the merits of the Bardasians’ claim, the court could not order the Bardasians to provide an undertaking.”

Source: Homeowners Not Required to Post Bond Under New Foreclosure Law—C.A.

For the court ruling, see Bardasian v. Superior Court, No. C068488 (Cal. App, 3rd Dist., December 15, 2011).