There are only two silver bullets to stop a foreclosure sale. One is the automatic stay provision from when the borrower files bankruptcy, and the other way to stop the trustee sale is through a temporary restraining order (“TRO”) and preliminary injunction (“PI”).
Though there has a been a surge in bankruptcy filings in recent years, borrowers are also resorting to novel theories of “foreclosure defense” in the state court. Many so-called “foreclosure defense” gurus post cookie cutter Complaints against lenders, loan servicers and trustees that allege Truth-in-Lending, wrongful foreclosure, lost promissory note and variations thereof.
Once the borrower has filed a civil action in state or federal court, they have a case under which they can later bring a motion for a TRO.
Once the lawsuit commences, the Plaintiff must then serve the complaint and summon on Defendants, who generally are the lender, the servicer, and the trustee for the sale. After serving the Complaint and Summons, the homeowner or the attorney for the Plaintiff must give notice that they plan on moving ex parte for a TRO.
Although the local rules for each court vary, most courts have a 24 hour notice requirement, or before 10:00 a.m. the day prior to the ex parte hearing.
It is our experience that borrower rarely manages to serve institutional lenders before they go in a for a TRO. Instead, they serve the trustee who is about to conduct the trustee’s sale. In instances of a private money loan, borrowers can usually find the local loan servicer or private lender and have them served with the Complaint and Summons as well.
To be granted a TRO, the moving party must demonstrate:
- a likelihood of success;
- that the balance of hardship weighs in the homeowners favor;
- irreparable harm, and;
- notice was properly given.
While these factors are difficult to meet, especially the likelihood of success on the merits of the lawsuit, many courts have been granting the TRO in order to stop an imminent foreclosure sale. A TRO is exactly what it stands for—temporary. That means it only stops the foreclosure sale for a couple of weeks at most.
As such, even if the lender opposes the motion, which is unlikely as many institutional lenders will not have retained a lawyer by the time of the hearing, the court will still generally grant the request for a TRO. The rationale being that the parties can present evidence at the PI hearing and the lender is not likely to be harmed by waiting two weeks.
If the court grants the TRO, the court will also set a date for an Order to Show Cause (OSC) as to why a PI should not be granted. That hearing should take place within 22 days in state court [California Code of Civil Procedure Section 527(d)(1) or 14 days in federal court [Federal Rules of Civil Procedure 65(b)(2)], the maximum length of time a TRO lasts. While TRO’s have been granted generously, judges have followed the requirements of statute and required a higher standard to grant a PI.
We have successfully defeated a number of preliminary injunction efforts by delinquent borrowers. Usually plaintiff borrowers cannot prove that they will succeed on the merits of the case.
For example, if the plaintiff cannot establish that the property is their residence, but lenders have demonstrated the property is a rental property, plaintiff usually cannot prove “irreparable harm” because there is case law that rental properties (or vacation homes) are not “unique.”
Another twist in the lender’s favor is when a borrower alleges “TILA” violations in a TILA rescission claim.
If the borrower wants to rescind the loan, rescission means a restoration of the parties to the place they were in before the loan took place (the status quo). If the loan was a purchase money loan, then the status quo is actually that the borrower would NOT own the house. In those circumstances as well, Courts would not find that the lender should be enjoined from conducting the foreclosure sale.
If the PI is ordered, it is usually valid for the length of the case, which sometimes runs for several years. One of the provisions that most PI will have will be a requirement that the homeowner make payments to maintain the PI in order to protect the bank. Alternatively, the borrower must post a bond in order to prevent further harm to a lender in the case if the preliminary injunction is granted.
Practice Notes -> If the Defendant is a bank, service can be made to any teller at any bank branch. [C.C.P. Section 416.10 (c)] This can cause notice of the hearings to be delayed for a substantial time. If the bank fails to oppose the OSC and the PI is granted, all is not lost. The restrained party can still file a motion to vacate the PI. Finally, while the TRO ends at the court hearing or 22 days after issue, the foreclosure sale is restrained for an additional 7 days.[California Civil Code Section 2924g(d).]