Billesbach v. Specialized Loan Servicing LLC

63 Cal.App.5th 830

278 Cal.Rptr.3d 213

Michael D. BILLESBACH, Plaintiff and Appellant,

v.SPECIALIZED LOAN SERVICING LLC, Defendant and Respondent.

B296121

Court of Appeal, Second District, Division 4, California.

Filed April 29, 2021

Lorden & Reed and Zshonette L. Reed, Woodland Hills, for Plaintiff and Appellant.

Reed Smith, San Diego, and Kasey J. Curtis, Los Angeles, for Defendant and Respondent.

MANELLA, P. J.

INTRODUCTION

Appellant Michael D. Billesbach and his late wife obtained a home mortgage loan in 2006. Only appellant's wife signed the promissory note. Some time after appellant's wife died, appellant defaulted on the loan. According to appellant, the mortgage servicer, respondent Specialized Loan Servicing LLC, refused to communicate with him about the loan because he was not the named borrower. Respondent then initiated foreclosure proceedings by causing a notice of default to be recorded. The notice included a declaration that respondent had diligently tried to communicate with appellant about alternatives to foreclosure in accordance with Civil Code section 2923.55.¹ Respondent later scheduled a foreclosure sale of the property.

Appellant filed this action under the California Homeowner Bill of Rights (HBOR; § 2923.4 et seq. ), seeking to enjoin the foreclosure proceedings. He claimed respondent had violated the HBOR by failing to assign him a "single point of contact" ( § 2923.7 ), failing to communicate with him regarding foreclosure alternatives before recording a notice of default ( § 2923.55 ), and recording a false declaration of compliance ( § 2924.17 ). Respondent postponed the foreclosure sale and agreed to review appellant's application for a loan modification. Ultimately, it offered appellant a trial-period modification plan and gave him a deadline to accept the offer by making his first payment. Appellant did not make his initial payment by the deadline, however, opting instead to attempt to obtain more favorable terms, without seeking to postpone the foreclosure sale. In a conversation with appellant's counsel, an attorney for respondent suggested that appellant present terms acceptable to him. About three weeks later, minutes before the foreclosure sale was scheduled to take place, appellant's counsel submitted his offer to respondent. The foreclosure sale proceeded as planned, and the property was purchased by a third party. Appellant sought to enjoin the recording of the sale, but the trial court denied his application, and the sale was recorded.

Appellant then filed an amended complaint, adding an allegation that respondent had violated the HBOR by conducting the foreclosure sale while his loan-modification application was still pending ( § 2923.6 ), and seeking damages for respondent's alleged violations. Respondent moved for summary judgment, and the trial court granted the motion. The court concluded that appellant's claims under sections 2923.55 and 2923.6 failed because those provisions had been repealed after appellant filed his action. Alternatively, it concluded that respondent had remedied any material HBOR violation before the foreclosure sale, and that the sale resulted from appellant's failure to accept the offered trial-period modification plan. After learning that the Legislature had reenacted sections 2923.55 and 2923.6, appellant moved for reconsideration, but the trial court denied his motion.

On appeal, appellant contends: (1) respondent failed to cure its pre-sale violations because it did not record a new notice of default after communicating with him; (2) respondent violated section 2923.6 by conducting the foreclosure sale while the parties were still in negotiations regarding a loan modification; and (3) given the Legislature's restoration of sections 2923.55 and 2923.6, the court erred in denying reconsideration. We reject each of appellant's contentions.

First, by its terms, the HBOR creates liability only for material violations that have not been remedied before the foreclosure sale is recorded. A material violation is one that affected the borrower's loan obligations, disrupted the borrower's loan-modification process, or otherwise harmed the borrower. Based on these principles, we hold that where a mortgage servicer's violations stem from its failure to communicate with the borrower before recording a notice of default, the servicer may cure these violations by doing what respondent did here: postponing the foreclosure sale, communicating with the borrower about potential foreclosure alternatives, and fully considering any application by the borrower for a loan modification. Following these corrective measures, any remaining violation relating to the recording of the notice of default is immaterial, and a new notice of default is therefore not required to avoid liability. We do not endorse respondent's conduct in failing to communicate with appellant before initiating foreclosure proceedings and failing to comply with other statutory requirements. Mortgage servicers should take care to comply with their statutory obligations in the first instance, rather than seek to cure violations after a borrower has sued them. We conclude only that appellant has provided no basis for liability under the HBOR.

As for the claimed section 2923.6 violation, the statute prohibits mortgage servicers from proceeding with the foreclosure process while a borrower's application for a loan modification is pending. On the record before us, we conclude respondent complied with this requirement as a matter of law by conducting the foreclosure sale only after appellant failed to accept an offered trial-period modification plan. Neither the continued communications between the parties following the expiration of the offer, nor appellant's last-minute offer on the eve of the sale, revived the expired offer or rendered appellant's application "pending" for purposes of the statute.

Finally, given our conclusions and the trial court's consideration of the merits of appellant's claims, the reinstatement of sections 2923.55 and 2923.6 did not warrant reconsideration. We therefore affirm.

BACKGROUND

A. The Loan and Respondent's Initiation of Foreclosure Proceedings

In 2006, appellant and his wife, Darlina E. Billesbach, took out a home equity line of credit secured by the couple's home in Lancaster. Only Mrs. Billesbach signed the promissory note, but both she and appellant executed the deed of trust securing it. After Mrs. Billesbach's death in 2008, appellant continued to make monthly payments on the loan. Respondent began servicing the loan in 2011.

According to respondent, appellant defaulted on the loan in early 2015. In February 2016, appellant made a monthly payment, but respondent returned the payment and advised him that the loan was in arrears and it could not accept anything less than the full amount due. According to appellant, he contacted respondent to inquire about the status of the loan and work out a payment arrangement, but despite informing respondent that his wife had died, was told he could not receive any information because he was not the named borrower.

About two months later, in April 2016, respondent initiated non-judicial foreclosure proceedings by causing a notice of default to be recorded.² Included with the notice of default was a declaration of compliance with section 2923.55, stating that respondent had "exercised due diligence to contact the borrower ... to ‘assess the borrower's financial situation and explore options for the borrower to avoid foreclosure.’ "³ The declaration identified appellant and his wife as the borrowers. Appellant's daughter attempted to contact respondent on his behalf, but respondent would not speak with her. In July 2016, respondent caused a notice of sale to be recorded, setting a foreclosure sale of the property for the following month.

B. Appellant's Lawsuit and Subsequent Application for a Loan Modification

In August 2016, days before the scheduled foreclosure sale, appellant filed a complaint against respondent, asserting violations of the HBOR and seeking injunctive relief. On appellant's application, the trial court issued a temporary restraining order to enjoin the foreclosure sale and ordered respondent to show cause why it should not issue a preliminary injunction.

Around the same time, appellant's counsel sent respondent a written request to review appellant for a loan modification. In response, respondent assigned a service representative to serve as appellant's "single point of contact," and advised the court that it was willing to review appellant for a loan modification.⁴ In September 2016, appellant submitted a loan-modification application to respondent, and over the next month, provided additional documents at respondent's request, until his application was complete. Because his application was under review, appellant took the scheduled hearing on his request for a preliminary injunction off calendar.

In November 2016, respondent denied appellant's application for a loan modification, but informed him he could apply for a second, independent review to determine his eligibility. Appellant took advantage of this option and appealed respondent's initial denial of his application.

C. Respondent's Offer of a Trial-Period Modification Plan

On December 19, 2016, following its review of appellant's appeal, respondent sent appellant a letter (erroneously addressed to Mrs. Billesbach's estate), offering him a "Trial Period Modification Plan." This plan required appellant to make three timely monthly payments of about $1,000, an estimate of the payment respondent would require under the modified loan terms when finalized. Under the trial-period modification plan, respondent would not conduct a foreclosure sale as long as appellant continued to make timely trial-period payments. If appellant made all timely payments and met certain other conditions, respondent would offer him a permanent modification agreement. As part of any...