The California Court of Appeal, Second Appellate District, recently affirmed a trial court’s grant of summary judgment in favor of a mortgage servicer in a suit filed under the California Homeowner Bill of Rights seeking to enjoin foreclosure proceedings.

In so ruling, the Second District concluded that:

  1. The HBOR creates liability only for material violations that have not been remedied before the foreclosure sale is recorded, which was not the situation here;
  2. The servicer complied with section 2923.6 as a matter of law by conducting the foreclosure sale only after the homeowner failed to accept an offered trial-period modification plan; and
  3. Given the Court’s conclusions and the trial court’s consideration of the merits of the homeowner’s claims, the reinstatement of sections 2923.55 and 2923.6 did not warrant reconsideration.

A copy of the opinion Billesbach v. Specialized Loan Servicing LLC is available at: Link to Opinion.

The homeowner and his wife obtained a home mortgage in 2006, but only the wife signed the promissory note. After the homeowner’s wife died, the homeowner defaulted on the loan. The homeowner alleged that the mortgage servicer refused to communicate with him about the loan because he was not the named borrower.

The servicer subsequently initiated foreclosure proceedings by causing a notice of default to be recorded. The homeowner filed suit under the California Homeowner Bill of Rights, Civil Code section 2923.4 et seq., seeking to enjoin the foreclosure proceedings. He claimed the servicer 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).

After the servicer agreed to postpone the foreclosure sale and the homeowner failed to make his payment, the foreclosure sale proceeded as planned and the property was purchased by a third party. The homeowner then filed an amended complaint against the respondent, adding an allegation that the servicer violated the HBOR by conducting the foreclosure sale while his loan-modification application was still pending (§ 2923.6).

The servicer moved for summary judgment, which the trial court granted. The trial court concluded that the homeowner’s claims under sections 2923.55 and 2923.6 failed because those provisions had been repealed after the homeowner filed his action. Alternatively, it concluded that the servicer had remedied any material HBOR violation before the foreclosure sale, and that the sale resulted from the homeowner’s failure to accept the offered trial-period modification plan.

After learning that the California Legislature had reenacted sections 2923.55 and 2923.6, the homeowner moved for reconsideration, but the trial court denied this motion.

On appeal, the homeowner contended: (1) the servicer failed to cure its pre-sale violations because it did not record a new notice of default after communicating with him; (2) the servicer 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 trial court erred in denying reconsideration.

First, the Second District observed that 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. See, e.g., Cardenas v. Caliber Home Loans, Inc. (N.D.Cal. 2017) 281 F.Supp.3d 862, 870.

However, the Second District pointed out that section 2924.12(c) encourages mortgage servicers to cure any material violation by providing a safe harbor to the servicers: “[a] mortgage servicer . . . shall not be liable for any violation that it has corrected and remedied prior to the recordation of the [foreclosure sale] . . ..”

Based on these principles, the Second District held 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 the 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.

The Court further concluded that, following these corrective measures, any remaining violation relating to the recording of the notice of default was immaterial, and a new notice of default was not required to avoid liability.

The Second District was careful not to endorse the servicer’s conduct in allegedly failing to communicate with the homeowner before initiating foreclosure proceedings and allegedly failing to comply with other statutory requirements. The Court only concluded that the homeowner had provided no basis for liability under the HBOR.

Regarding the homeowner’s second argument, the Second District noted that section 2923.6(c) prohibits mortgage servicers from proceeding with the foreclosure process while a borrower’s application for a loan modification is pending. However, a servicer may conduct a foreclosure sale when “the borrower does not accept an offered . . . loan modification within 14 days of the offer” (§ 2923.6(c)(2)) or “14 days after a . . . loan modification is offered after appeal but declined by the borrower” (§ 2923.6(e)(2)).

Therefore, the Second District concluded that the servicer complied with section 2923.6 as a matter of law by conducting the foreclosure sale more than 14 days after the homeowner failed to accept an offered trial-period modification plan. Neither the continued communications between the parties following the expiration of the offer, nor the homeowner’s last-minute offer on the eve of the sale, persuaded the Court that the expired offer was revived or that the homeowner’s application became “pending” for the purposes of the statute.

Finally, given the Second District’s conclusions and the trial court’s consideration of the merits of the homeowner’s claims, the Court held that the reinstatement of sections 2923.55 and 2923.6 did not warrant reconsideration.

Accordingly, the Second District affirmed the trial court’s grant of summary judgment in favor of the servicer.