Default Featured image

Foreclosure Bidder’s Frivolous Lawsuit Bites the Dust

Foreclosure Litigation and Real Estate Law by Peter N. Brewer, Esq.

UPDATE: This case was appealed to the 9th Circuit Court of Appeals, and was affirmed in part, and reversed/remanded in part. Read the update here:

Robert Jacobsen sued Aurora Loan Services, LLC in Contra Costa County Superior Court seeking to rescind a trustee’s deed issued to Aurora.  Jacobsen, apparently through pre-foreclosure negotiations with the original borrower, had received a grant deed from the borrower, Michael O’Brien.  Jacobsen attended the sale and made a cash bid of $500.  Aurora credit bid $1.5M and Cal-Western Reconveyance Corp issued the Trustee’s Deed Upon Sale to Aurora.

Jacobsen sued in small claims court, and then later amended the complaint and teamed up with O’Brien as a co-plaintiff. (The action was removed to the federal district court in San Francisco.) Plaintiffs alleged that the sale should rescinded as well as other legal theories: 1) the Deed of Trust was void because the beneficiary named was “Direct Funding” an entity who was allegedly not the lender; 2) TILA violations; 3) Interference with prospective economic advantage; and 4) Jacobsen’s cash bid should have been the winning bid as opposed to Aurora’s credit bid.

The defendants brought motions for Summary Judgment, and on August 8, 2012, Judge Seeborg issued an order granting the defense motions. [Jacobsen v. Aurora Loan Services, LLC, et al, Case No. C12-0135RS issued Aug. 8, 2012 2012 WL 3257665.]

The Court disposed of all of plaintiffs’ legal theories, finding that the beneficiary on the deed of trust had filed the appropriate fictitious business name statements in accordance with California law.  The court noted that from a purely technical standpoint, while the beneficiary’s name was not correct on the deed of trust, it did not mean the deed of trust was void.  *

The Court determined there was no validity to any alleged TILA violations because Aurora was the not the owner of the loan, and as a servicer did not have a duty to give a written notice under 15. U.S.C. 1641(g).  Lastly, plaintiffs had failed to demonstrate that any act of Aurora or the lender had created any actionable interference, or that Aurora had not properly credit bid at the sale. Though the Court did not specifically address it, it is well established law that a lender is not required to pay cash at a non-judicial foreclosure sale and may credit bid up to the outstanding indebtedness. [Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th 1226, 1238, citing Cornelison v. Kornbluth (1975) 15 Cal. 3d 590, 607.]

This case was a far cry from the case Baron v. Colonial Mortgage where the trustee refused to qualify prospective foreclosure bidders who had arrived with cashier’s checks.  In that case, the Court found that the bidders had a legitimate cash alternative, and the trustee’s refusal to qualify those bidders with “good” money was a breach of duty.  The Baron Court was quick to point out however that the trustee did not have a fiduciary duty to the bidders. [Baron v. Colonial Mortgage (1980) 111 Cal.App.3d 316, 323.]

Author’s comment: It is not easy to rescind a sale, and usually there must be a defect within the proceedings that renders the actual sale void.  If a trustee learns of an irregularity in the foreclosure proceedings post sale, the trustee will generally refuse to issue the Trustee’s Deed.  This has been known to happen where the lender accepts a reinstatement payment from the trustor but the trustee learns of this fact after the trustee’s sale has been conducted.  Theoretically, a trustee may record a notice of rescission pursuant to California Civil Code Section 1058.5, but even the leading case discussing the code section does not indicate whether a the rescission is automatic or that a judicial determination is required.

*“Direct Funding, A California Corporation” was apparently the beneficiary shown on the Deed of Trust.  By the court’s comment that it was not technically correct, it suggests that beneficiary should have been shown on the deed of trust as “Bush & Heeitt Holding, Inc., a California Corporation doing business as Direct Funding” perhaps.

UPDATE: This case was appealed to the 9th Circuit Court of Appeals, and was affirmed in part, and reversed/remanded in part. Read the update here:

Latest Posts

Marijuana & Real Estate

Navigating the Unstable World of Real Estate and Cannabis in California

by Ashlee D. Gonzales, Esq. on June 25, 2018

Marijuana legalization in California is here, but the fact that the substance is still considered illegal at the Federal level is causing some confusion and hardships for growers and sellers. Learn about how to navigate the unknown areas in attorney [more]

Landlord & Tenant Law

5 Things Landlords Should Remember When Evicting Tenants

by Lorena Roel, Esq. on August 16, 2018

Summer is a time where most things slow down. School is out, vacations are plentiful, and the days are longer. What does not slow down is the housing market. With that inevitably comes evictions. A landlord who wants to regain [more]

Real Estate Contracts & Transactions

Selling Your Home with a Tenant Inside

by Ashlee D. Gonzales, Esq. on August 16, 2018

Being a landlord in California can be very rewarding, but also challenging at times. Being a landlord and trying to sell your home can be even more challenging. In the Bay Area specifically, we’ve noticed a slowdown in the market [more]