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Court Gives a Double Win to Borrowers

Mortgage & Lending Law and Real Estate Law by Peter N. Brewer, Esq.

Vidal Preciado was the owner of a residential property in Alviso, California where he lived with two roommates.  In July 2011, the Bank of New York Mellon (“BNYM”), holder of a loan secured against Preciado’s property, foreclosed on the loan.  At the foreclosure sale BNYM acquired the property and then began the eviction process against Mr. Preciado and his roommates.  After filing the unlawful detainer action, BNYM retained a process server to serve the complaint.  As with many unlawful detainer actions, the process server effected service of the complaint by posting and mailing the complaint.

At the trial court level, the Preciado argued that the eviction was improper because BNYM failed to serve notice of the unlawful detainer complaint and the foreclosing trustee was not the rightful trustee under the deed of trust.  The trial court decided in favor of BNYM for two reasons: 1) there was a proof of service executed by a process server attesting to service of the complaint, and 2) a trustee’s deed upon sale had been issued in favor of BNYM.

THE DECISION:

The Appellate Division of the Santa Clara County Superior Court overturned the trial court’s judgment in favor of the bank seeking to evict the tenants.  In Bank of New York Mellon v. Preciado, the Appellate Division held that service of an unlawful detainer action by posting and mailing is improper unless some other form of service is attempted first.  Although the court agreed that there is no need to make a showing of reasonable diligence before utilizing the “post and mail” service authorized by the statute, a process server is required to make some attempt at service before resorting to that method.

In addition, the court also found that the foreclosure sale may have been invalid.  The court noted that BNYM did not present any evidence that ReconTrust, the trustee that conducted the foreclosure, had any authority to foreclose.  The deed of trust named Commonwealth Land Title Company as the trustee and BNYM did not provide any evidence that ReconTrust was ever substituted as trustee.  Accordingly, ReconTrust did not have the power of sale under the deed of trust.

WHY THIS DECISION IS IMPORTANT:

This case is yet another case in a long series where the courts are punishing lenders for failing to properly follow the procedures.  Previously, it was unlikely that many courts would be concerned with the technical defects raised by Preciado.  However, the courts have shifted to require strict compliance with the foreclosure and unlawful detainer statutes.  While the requirements in this case are not particularly burdensome, it is clear that lenders will need to more strictly comply with the law in order to foreclose or evict borrowers.

COMMENT:

It is important to note that this decision was made by the appellate division of a superior court, not by an appellate court, nor the supreme court.  Although it does not have any binding authority over other courts, it was a decision that was ordered to be published by the California Supreme Court.  While that in itself does not give it any more binding authority, it may signal that in similar cases, higher courts would adopt the holdings.

As always, give us a call at (650) 327-2900 if you think you have a real estate matter and need legal representation or visit us on the web at www.BrewerFirm.com.

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