When homeowners or borrowers seek to challenge foreclosures against them, California courts have long recognized the “full tender rule”, an equitable principle that requires the challenger to tender the amount owed as a prerequisite to making the challenge. The rule requires the homeowner to offer to pay the full amount owed when a foreclosure sale has already occurred, or offer to cure any default if the sale is still pending. This is because courts are loathe to engage in futile acts, so the theory is that there is no purpose in setting aside a foreclosure if the borrower will still be in default and the foreclosure will simply be repeated.
In Lona v. Citibank, 202 Cal. App. 4th 89, the court, in a pro-homeowner ruling, ruled that the homeowner did not need to make a full tender offer to set aside the foreclosure sale where the homeowner alleged that the loan was unconscionable. Here, an “unconscionability exception” to the full-tender rule was created.
However, in Stebley v. Litton Loan Servicing, 202 Cal. App. 4th 522 (2011), the court of appeal affirmed the trial court’s dismissal of the homeowner’s complaint to set aside the foreclosure sale, holding that in order to set aside a foreclosure sale the homeowner must tender full payment to the lender. Additionally, the court rejected the homeowner’s allegation that the lender violated Civil Code Section 2923.5 when the lender processed an application for a loan modification but abruptly foreclosed without notice of the decision to deny the loan modification.
Additionally, in Pfeifer v. Countrywide Home Loans, 211 Cal. App. 4th 1250 (2012), after both the Lona and Stebley cases, the court found that the tender offer rule did not apply because the foreclosure sale had not yet occurred. Originally, the trial court dismissed the homeowners’ claim on the grounds that the homeowners failed to comply with the tender offer rule by not offering to pay the outstanding loan amount. However, on appeal, the appellate court reversed the lower court’s ruling and held that in situations where the foreclosure has not yet occurred, a tender is not required.
The case law has clearly been evolving and the present state of the law is less than clear. Courts are striving to maintain a balance between protecting the homeowners while at the same time protect the secured creditors.
For assistance in determining whether the tender offer rule applies, homeowners and creditors should contact Brewer Offord & Pedersen LLP for a consultation. Contact Jessica Uriostie (Office Manager) at (650) 327 – 2900 x 10 or e-mail Jessica@BrewerFirm.com to set up an appointment.
