Borrowers Lack Standing To Challenge Securitization Of Real Property Loans

In Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4^th 919 (Yvanova), the California Supreme Court issued a narrow ruling on a borrower’s standing the challenge the validity of the chain of assignments involved in the securitization of real property loans. The court held that a borrower has standing to allege that an assignment of the promissory note and deed of trust to the foreclosing party was void, but the borrower does not have standing if the transfer was merely voidable. The Supreme Court did not decide whether a post-closing date transfer into a New York securitized trust is void or voidable.

On December 13, 2016, in Mednoza v. JPMorgan Chase Bank, N.A., the California Court of Appeal held that a post-closing date transfer into a New York securitized trust is merely voidable. Accordingly, the borrower/plaintiff, Maria Mendoza, did not have standing to challenge alleged irregularities in the securitization of her loan.

The Court of Appeal explained that where assignment is void, meaning of no legal force or effect whatsoever, the foreclosing entity has acted without legal authority by pursuing a foreclosure sale.  Because the assignment is without any effect, it can never be ratified or validated by the parties to it.

By contrast, a voidable contract or assignment is one that the parties to it may ratify and thereby give it legal force and effect or extinguish at their election. Only the parties to the contract or assignment have the power to ratify or extinguish; consequently, allowing a borrower to challenge an assignment based on a defect that only renders it voidable would allow the borrower to exercise rights belonging exclusively to the parties to the assignment.

Mendoza cited Glaski v. Bank of America (2013) 218 Cal.App.4^th 1079 (Glaski) for the proposition that post-closing date transfers to a New York securitized trust were void. The Court of Appeal declined to follow the holding in Glaski noting an “avalanche of criticism of Glaski’s interpretation of New York law followed.” The Court of Appeal stated that it would defer to New York courts on questions of New York state law. The New York courts have rejected the holding in Glaski.

The California Court of Appeal went on to state “The principle that a trustee’s unauthorized acts may be ratified by the beneficiaries is harmonious with the overall principal that only trust beneficiaries have standing to claim a breach of the trust. If a stranger to the trust also has such standing, the stranger would have the power to interfere with the beneficiaries right of ratification.”

The Court of Appeal concluded that assignments that violate a Pooling and Servicing Agreement (PSA) or applicable law are voidable and, as a result, borrowers do not have standing to challenge late transfers or other defects in the securitization process.

Because defects in the securitization process may be ratified, the result is that borrowers in California do not have standing to challenge securitization of their real property loans.

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.

© 2016 Ruzicka, Wallace & Coughlin, LLP.

City of Los Angeles Enacts Tenant Buyout Notification Ordinance

On December 15, 2016, Mayor Eric Garcetti signed a Tenant Buyout Notification Ordinance. The purpose of the ordinance is to regulate and monitor voluntary vacancies of rental units subject to the City of Los Angeles Rent Stabilization Ordinance (RSO) pursuant to Buyout Agreements.

By way of background, the RSO contains both rent controls and eviction controls. The rent control provisions limit the amount of rent that a landlord may charge. The eviction control provisions limit the grounds for eviction. Under the RSO, a landlord is required to have good cause, as defined by the RSO, to terminate the tenancy. The net result is that as long as a tenant timely pays rent and complies with the terms and conditions of his or her tenancy, the tenant is entitled to continue renting the premises for as long as the tenant desires, subject to certain limited exceptions. When an exception applies, such as to allow the landlord, a family member or property manager to reside in the rental unit or to allow the landlord to demolish or permanently remove the rental unit from the market, the landlord is generally required to pay relocation assistance to the tenant. Currently, relocation assistance amounts range from $7,900 to $19,400 per rental unit depending on various factors such as the length of the tenancy (more or less than 3 years), whether any of the tenants are disabled, elderly or children, and household income. Tenants are not entitled to relocation assistance if they are evicted for a breach of a lease or rental agreement.

When tenants voluntarily vacate a rental unit, the landlord is entitled to increase the rent to market rates. This is known as vacancy decontrol. This creates an incentive for landlords to offer “cash for keys” to residents paying artificially low rents under the RSO.

The potential problem is that some tenants may not know their rights under the RSO. So, if the landlord offers a tenant a few thousand dollars to vacate, the tenant may believe that the tenant is getting a good deal when, in fact, the cost of moving and paying higher rent somewhere else may quickly deplete any money received by the tenant.  In such cases, the tenant may have been better off declining the landlord’s buyout offer.

The new ordinance seeks to address this issue by providing the following rules and regulations:

1.  RSO Disclosure Notice. Before making a Buyout Offer (defined below), the landlord is required to provide the tenant(s) with an RSO Disclosure Notice of tenant rights on a form authorized by the rent stabilization board, which must be dated and signed by the landlord and the tenant(s).

2. .Written Buyout Agreement. Every Buyout Agreement (defined below) is required to be written in the primary language of the tenant and state in a minimum of 12-point bold type above the tenant signature line as follows:

“You, (tenant name), may cancel this Buyout Agreement any time up to 30 days after all parties have signed this Agreement without any obligation or penalty.”

Additionally, every Buyout Agreement must be signed and dated by the landlord and tenant, and a copy of the fully executed Buyout Agreement must be given to the tenant.

3.   Cancellation of Buyout Agreement. A tenant has the right to cancel a Buyout Agreement for any reason for up to 30 days after execution by the landlord and the tenant without any financial obligation or penalty. Additionally, whenever an RSO Disclosure Notice and/or Buyout Agreement does not conform to the requirements of this the new law or applicable regulations, the tenant has the right to cancel the Buyout Agreement through the applicable statute of limitations period.

4.  Filing Executed RSO Disclosure Notice and Buyout Agreement. Within 60 days of execution of a Buyout Agreement, the landlord is required to file copies of the Buyout Agreement and RSO Disclosure Notice signed by the tenant and the landlord, with the rent stabilization board.

5.  Affirmative Defense. A violation of this the ordinance may be asserted as an affirmative defense in an unlawful detainer action.

6.   Private Right of Action. Additionally, a tenant may bring a private right of action against a landlord who violates a provision of the ordinance and recover damages and a penalty of $500.

The ordinance defines a “Buyout Offer” as an offer, written or oral, by a landlord to a tenant to pay money or other consideration to vacate an RSO unit. A “Buyout Agreement” is defined as a written agreement where a landlord pays a tenant money or offers other consideration to voluntarily vacate an RSO rental unit.

Further information regarding the Tenant Buyout Notification Ordinance is available from the Los Angeles Housing and Community Investment Department (HCIDLA), website http://hcidla.lacity.org/, or by contacting Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice. 

Risks Associated with Proceeding with Eviction While Appeal is Pending

When a landlord who has secured a writ of possession evicts a tenant before the appellate rights of the tenant have been exhausted, the landlord assumes the risk it will be subject to a full accounting and restitution if the judgment granting the writ of possession is reversed on appeal. That principal was again highlighted in the recent case of Beach Break Equities v. Martin Lowell (decided December 14, 2016).

This case concerned a single family home that had been leased to a tenant, Lowell, under a five year lease with multiple five-year options. The owner of the property defaulted on the loan and the lender foreclosed.  Beach Break acquired the property at the trustee's sale and then filed an eviction action against Lowell.  The trial court granted Beach Break's motion for summary judgment. While Lowell appealed the judgment, Beach Break obtained a writ and proceeded with the eviction.  After it evicted Lowell, Beach Break sold the property to a third party.

In a major development, the appellate court reversed Beach Break’s victory on summary judgment, and also ordered the trial court to grant Lowell a hearing for potential restitution. However, in later proceedings, the trial court refused to grant Lowell a restitution hearing because Lowell had not sought such relief in his answer or by a separate Cross-Complaint. The trial court then allowed Beach Break to dismiss the action.  The case looked over again; but again Lowell appealed.  The appellate court reversed and held that Lowell was entitled to a restitution hearing, including because the prior appellate court had ordered it.  The court explained that receiving such a hearing is an equitable right that exists independently of whether the party had actually requested restitution in its pleadings.  Moreover, Beach Break was not allowed to avoid the potential of a restitutionary remedy by dismissing the case. In reversing the dismissal, the appellate court noted that it was not holding that Lowell was entitled to restitution, only that he was entitled to a hearing on the issue.  The actual right to restitution following reversal on appeal is left to the trial court's judicial discretion.

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.

© 2016 Ruzicka, Wallace & Coughlin, LLP.

A Tenant May Recover Statutory Attorney Fees In An Eviction Action If The Court Determines That The Tenant’s Rental Unit Is Not Habitable And The Conditions Requiring Repair Were Cited By The City

On October 26, 2016, the Appellate Division of the Superior Court of California issued a published opinion in Active Properties LLC v. Maria Cabrera holding that a tenant that prevails in an unlawful detainer action based on a breach of the warranty of habitability may recover statutory attorney fees by filing a noticed motion provided the conditions set forth in Civil Code section 1942.4 have been met.

Civil Code section 1942.4 requires the tenant to establish the following: (1) The dwelling substantially lacks the affirmative standard characteristics specified in the Civil Code for habitable premises, violates certain requirements of the Health and Safety Code, or is deemed and declared substandard because conditions listed the Health and Safety Code exist to an extent that endangers the life, limb, health, property, safety, or welfare of the public or the occupants of the dwelling. (2) A public officer or employee who is responsible for the enforcement of any housing law, after inspecting the premises, has notified the landlord or the landlord's agent in writing of his or her obligations to abate the nuisance or repair the substandard conditions. (3) The conditions have existed and have not been abated 35 days beyond the date of service of the notice and the delay is without good cause. (4) The conditions were not caused by an act or omission of the tenant.

In this case, the Los Angeles Housing Department (LAHD) inspected and cited the landlord’s property, and thereafter ordered the landlord to “[f]umigate/exterminate as necessary to eliminate insect infestations” in the tenant’s apartment. Roughly 18 months later, the landlord filed an unlawful detainer action against the tenant for non-payment of rent. A jury decided that the landlord had breached the warranty of habitability. After trial, the tenant filed a motion to recover statutory attorney fees arguing that the landlord never complied with the LAHD’s order. The trial court denied the motion. However, the Appellate Division of the Superior Court concluded that the tenant had met the requirements of Civil Code section 1942.4 and hence was entitled to attorney fees.

The moral of the story is that landlords should confirm that a tenant's rental unit is habitable before filing an eviction action against a tenant for non-payment of rent, especially if the rental unit has been cited by a government inspector. 

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice. 

California Supreme Court Clarifies That The Purchaser of Real Property At a Foreclosure Sale Must Wait For The Foreclosure Deed To Be Recorded Before Serving a Notice to Quit

On November 30, 2016, the California Supreme Court ordered published the opinion of the Appellate Division of the Superior Court of San Diego in U.S. Financial, L.P. v. Michael McLitus, which held that title is not perfected for purpose of California’s post-foreclosure eviction statute until the foreclosure deed has been recorded.

Code of Civil Procedure section 1161a permits the purchaser of real property at a foreclosure sale to evict the former owners where: (1) “…the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust executed by such person, or a person under whom such person claims, and the title under the sale has been duly perfected”, (2) the former owners have been served with a three day notice to quit, and (3) the former owners continue in possession of the property. (Code Civ. Proc., § 1161a, subd (b)(3))

The legal issue decided in this case is whether a foreclosure purchaser must wait for the foreclosure deed (known as a “Trustee’s Deed Upon Sale” or “Trustee’s Deed”) to be recorded before serving a notice to quit. 

Various arguments have been advanced as to why the foreclosure purchaser does not need to wait for the foreclosure deed to be recorded before serving a notice to quit. One such argument is that the foreclosure statutes state that “The trustee’s sale shall be … deemed perfect as of 8 a.m. on the actual date of the sale if the trustee’s deed is recorded within 15 calendar days after the sale….” (Civil Code § 2924h) Under this argument, as long as the foreclosure deed is recorded within 15 days of the foreclosure sale, it is proper to serve a three day notice as soon as the foreclosure sale is completed. Another argument is that Code of Civil Procedure 1161a does not specify the order of when title must be perfected and the notice must be served; so, as long as both occur before the filing of an eviction, the requirements of the eviction statute have been met.

This issue is now resolved. The purchaser at a foreclosure sale must wait for the foreclosure deed to be recorded before serving a notice to quit. The language of Civil Code § 2924h stating that title is perfected as of 8 a.m. on the date of the sale if the trustee’s deed is recorded within 15 days of the sale relates to perfection of the sale rather than perfection of title. Title is perfected when the trustee’s deed is recorded. The eviction statute requires both the sale and title to be perfected before service of the notice to quit.

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice. 

© 2016 Ruzicka, Wallace & Coughlin, LLP.

California Passes Bill Regulating Water Submeters In Rental Housing

On September 26, 2016, Governor Brown signed Senate Bill Number 7 into law. This law amends Civil Code section 1954 (entry by the landlord) and adds Civil Code sections 1954.201 et. seq. (submetering of water in rental housing). The new law becomes operative on January 1, 2018.

This stated intent of the new law is to encourage the conservation of water in multifamily residential rental buildings through means either within the landlord’s or the tenant’s control, and to establish that the practices involving the submetering of dwelling units for water service are just and reasonable, and include appropriate safeguards for both tenants and landlords.

The law contains extensive regulations and requirements regarding water submetering. Among other things, the new law requires a landlord to make numerous disclosures to tenants prior to the execution of the rental agreement, limits charges that may be assessed tenants including billing agent charges and late fees, limits when a tenant may be evicted for non-payment of water charges, and regulates when submeters must be read.  The new law also imposes obligations on the tenant to report leaks and obligations on the landlord to repair leaks, and grants the landlord the right to enter the premises for the purpose of installing, repairing, or replacing a submeter, or for the purpose of investigating or rectifying a condition causing constant or abnormally high water usage.

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice. 

© 2016 Ruzicka, Wallace & Coughlin, LLP.