Many claims based on flawed foreclosure sales never get out of the starting gates because the borrower fails to allege a pre-lawsuit “tender” of all amounts due on the loan.

But as illustrated in a recent decision by the California Court of Appeal (Second District in Los Angeles) — Valbuena v. Ocwen Loan Servicing, LLC — a tender is not required to state a claim under the Homeowner’s Bill of Rights (HBOR) for violation of the prohibition on “dual tracking” (foreclosing on a loan while negotiating with the borrower to avoid foreclosure).

The facts

Plaintiffs purchased property in Carson, California in 2004, and used the property as security for a $485,000 loan in 2006.  By 2011, plaintiffs had fallen behind on their mortgage payments.

The trustee recorded a notice of default in September 2011, followed by a notice of trustee’s sale.  A second notice of trustee’s sale was recorded in February 2013, setting a sale date of March 14, 2013.  The sale date was later postponed to March 25, 2013.

On March 13, 2013, the loan servicer (Ocwen) sent plaintiffs a letter inviting plaintiffs to apply for mortgage assistance pursuant to the Home Affordable Mortgage Program (HAMP).  The letter assured plaintiffs that no foreclosure sale would proceed while Ocwen considered plaintiffs’ modification request as long as plaintiffs met the eligibility requirements and provided all required documents no later than seven business days before the foreclosure sale.

Plaintiffs received Ocwen’s letter on March 18, and responded on March 21 by submitting paystubs, a W-2, and bank statements.  After speaking with an Ocwen representative by phone on March 23, plaintiffs submitted additional financial documentation.

On March 25, Ocwen sent a letter informing plaintiffs that they were not eligible for a modification because they had not timely submitted documentation.  That same day, Ocwen acquired the property at a trustee’s sale.

The trial court dismisses plaintiffs’ claims

Plaintiffs sued, alleging a variety of claims including one for violation of the prohibition on “dual tracking” contained within the HBOR.  Plaintiffs initially included a claim seeking to set aside the trustee’s sale, but later dropped that claim, leaving only claims for damages.

Ocwen filed a demurrer, arguing the claims were defective because plaintiffs failed to allege that they had tendered all amounts due on the loan.

The trial court agreed with Ocwen and dismissed the lawsuit.  Plaintiffs appealed.

The Court of Appeal holds that no tender was required

The Court of Appeal reversed, and reinstated plaintiffs’ claims.

The opinion started by examining the dual tracking prohibition in Civil Code section 2923.6.  Under that section, if a borrower submits a complete application for a first lien loan modification, then a lender (or trustee, agent, etc.) cannot record a notice of default or notice of sale, or conduct a trustee’s sale, while the application is pending.  Those foreclosure steps cannot be pursued until: (1) the loan servicer determines in writing that the borrower is not eligible for a modification, and any period for appealing that decision has expired; (2) the borrower does not accept an offered modification within 14 days of the offer; or (3) the borrower accepts a modification but defaults.  If a borrower’s application for a modification is denied, the lender must wait to pursue foreclosure until the later of 31 days after the borrower is notified in writing of the denial, or 15 days after the denial of the borrower’s appeal.

The Court observed that nothing in the HBOR requires that a borrower tender the loan balance before filing suit based on a violation of the statutory requirements.  “Indeed, such a requirement would completely eviscerate the remedial provisions of the statute.”  The Court further noted that the rationale for the tender rule — preventing the unnecessary setting aside of completed trustee’s sales based on improper notice where the borrower had no ability to pay the loan amount even on proper notice — served no purpose in cases seeking monetary damages (not the setting aside of the sale) based on statutory violations (not defective notice).

The Court concluded: “In short, we agree with plaintiffs that a tender of the amount due under the loan is not required to state a cause of action under section 2923.6.”  The Court also agreed with plaintiffs that the issues of whether plaintiffs had submitted complete documentation supporting their loan modification request, and whether Ocwen had provided a “reasonable timeframe” for plaintiffs’ submission of a complete application, were not suitable for determination on a demurrer.


Under the Valbuena decision, borrowers do not need to tender the loan balance to state a claim for damages for violation of the dual tracking prohibition within the Homeowner’s Bill of Rights.