Robert Stack, Esq. has been fighting and litigating foreclosure cases since the real estate recession of the early 1990s. Mr. Stack has represented lenders and borrowers equally in foreclosure actions involving apartment buildings, commercial buildings and single family residences. He successfully defended a foreclosure action involving a 126 unit hotel in Fullerton, California. He also participated in the successful defense of two foreclosure actions involving high rise office buildings on Wilshire Boulevard in Los Angeles, California. One loan was for 14 million dollars and the other was for 13 million dollars.

Mr. Stack also worked for the United States Small Business Administration for one year in the early 1990's drafting and reviewing real estate loan documents. Before becoming a lawyer, he was a real estate lender and broker.

The law Offices of Robert A. Stack has been successful in representing both lenders and borrowers with settlement negotiations, forbearance agreements, workout agreements, injunctions, foreclosure litigation, trials, evictions and appeal. The firm is aggressive, dedicated, experienced and focused on the issues and concerns of real estate lenders and borrowers.

Non-judicial foreclosures are foreclosures conducted through procedures set up outside of the court system.

Judicial foreclosures are foreclosures handled inside of the court system.

A deficiency judgment is a judgment against a borrower for the difference between the amount owed under the loan and the value of the property securing the loan.

Our office is very active in non-judicial and judicial foreclosures. We also obtain reliefs of stay in bankruptcy court and prosecute evictions.

Non-judicial foreclosures are economical and offer our clients speed. Because mistakes are so costly, we bring technical precision to our non-judicial foreclosure cases. Moreover, we are well versed in borrower claims. This gives us an advantage when prosecuting all kinds of foreclosures.

Although more cumbersome, judicial foreclosures are a preferred method of foreclosure for many of our clients. They can be used instead of non-judicial foreclosures, or in conjunction with them. For example, a judicial foreclosure can be brought long enough to have a receiver appointed, and then dismissed. We are active in obtaining receivers in our cases involving nonowner occupied properties and deficiency judgments in our cases involving non-purchase money loans. Therefore, judicial foreclosures enable our clients to pursue all of their remedies, while non-judicial foreclosures are more efficient.

We use a comprehensive approach to look for lender liability in all phases of loan development. We review the processes thoroughly from loan origination through loan servicing, through forbearance or workout negotiations, through foreclosure. We also represent borrowers in bankruptcy and eviction.

The following are some of the issues we explore:

There are detailed procedural requirements that must be followed for a non-judicial foreclosure. Because non-judicial foreclosure is handled outside the court system, the procedures are strictly enforced.

Anti-Deficiency Legislation

Deficiency judgments are prohibited against borrowers in non-judicial foreclosure cases.

Deficiency judgments are prohibited against borrowers in judicial foreclosure cases if the loans were seller carry-back loans or the loans were made by lenders on dwellings of 1-4 units.

A deficiency judgment is limited to the difference between the amount owed under the debt and the fair value of the foreclosed property (not the foreclosed sales price).

If a foreclosure case goes to trial, a fair value hearing should be requested. In such event, the fair market value of the property would have to be determined before a deficiency judgment could be awarded.

A guarantor’s obligations shall not be larger in amount nor in other respects more burdensome than those of the principal. If surety defenses are not waived, they provide added protection to guarantors.

Consideration

Value must be exchanged in every contract. Despite language in the loan documents themselves, there may be a lack of consideration (value exchanged) for certain loan modifications or guarantees.
 
Breach of Contract

A lender may violate a loan contract by failing to perform it’s own promise, by repudiating it, or by interfering with another party’s performance.

Every contract has within it a covenant of good faith and fair dealing. The parties must have honesty in fact and follow reasonable standards of fair dealing. The lender must not falsely represent that it will stop the foreclosure process during negotiations. It must not gain further collateral under false pretenses.

In addition, there are specific contractual terms such notice requirements that must be followed by the lender.

Loan documents typically contain attorney’s fees clauses. Attorney’s fees clauses are reciprocal, even if only one party is mentioned. This means that if the borrower prevails, the borrower can claim attorneys fees. If the lender prevails, the lender can claim attorney’s fees. The amount is set by the court, regardless of what the deed of trust says.

Attorneys fees should be considered in any decision making process. Legal claims pursued should be addressed in light of attorneys fees and the risks, costs and benefits associated with the claims.

Fraud, or intentional misrepresentation, is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.

Were false representations made regarding interest rate adjustments? Were loan documents added after the fact? Were false representations made regarding the borrower’s ability to repay the loan? Was there a prior lender-borrower relationship? Did the lender misrepresent the ability to get a construction loan take-out?

Despite the statute of frauds, which requires that contracts longer than one year be in writing, oral statements are admissible to prove fraud or misrepresentation.

If conduct does not rise to the level of fraud, it may be considered negligent misrepresentation.

This is an important area for lender liability. There are many requirements that must be followed by lenders under the Truth in Lending Laws. The origination process and interest rate adjustment terms should be closely scrutinized. However, it should be noted that Truth in Lending applies to credit extended for personal, family or household purposes. It does not apply to corporations or partnerships.

Loan Settlement Fees and Procedures Law (RESPA)

This is an important area for lender liability. RESPA covers excessive unearned fees, lack of disclosures, excessive markups, etc.

RESPA does not apply to temporary financing such as construction loans, unless the loan is made to finance the construction of a 1-to 4-family residential property, and the loan is used as, or may be converted to, permanent financing by the same lender, or unless the loan is used to finance the transfer of title to the first user of the newly constructed property. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by RESPA.

The California Unfair Business Practices Act prohibits false or misleading statements intended to induce any person or entity to enter into an obligation (eg. loan) or service contract.

In order for RICO to apply, it must be established that the lender had a pattern of corrupt activity in making, administering, or enforcing loans in more than one state or country. This requires extensive discovery (legal demands for information) and could get expensive.

If a lender is not exempt from the usury laws, it cannot charge more than 10% interest. Under certain circumstances, an inquiry should be made as to whether or not a lender has a real estate broker’s license.

Deeds of Trust, Mortgages, Foreclosure and Lender Liability

Mortgages and deeds of trust are used to secure real estate loans. A deed of trust operates like a mortgage except that it conveys title to real property to a trustee as security until the grantor of the deed of trust repays the loan. If a secured piece of real estate is transferred, and the lender does not enforce an acceleration clause in the mortgage or deed of trust, the new buyer takes the property "subject to" the loan. The original borrower may still be liable unless the lender consents to an assumption. It is typical for lenders to assign their loans to other lenders. Filing a homestead protects a portion of the borrower’s equity in the event of a foreclosure.

When a borrower defaults on a real estate loan, the lender must first look to the security for the loan, and foreclose on the real property before going after the borrower’s personal property. If the loan has a power of sale clause, the lender can choose either court foreclosure or private sale. If a private sale is chosen, the lender cannot get a deficiency judgment to hold the borrower personally liable for any balance not recovered from the sale. If a court sale is held, and the original loan proceeds were used to purchase the property, in many cases the borrower cannot be held personally liable for a deficiency. An assignment of rents clause in a deed of trust or mortgage gives the lender the right to collect rents during the foreclosure of a non-owner occupied property.

Lenders must be aware that they can be held liable under many different circumstances. For example; improperly taking and processing loan applications, improperly making loan commitments and construction agreements, negligently disbursing funds, imprudently acquiring construction defects, contamination, and other liabilities through foreclosure, committing negligence, fraud, or circumstances of strict liability, breaching the covenant of good faith and fair dealing, violating the Truth-in-Lending regulations and disclosure requirements, violating the Real Estate Settlement Procedures Act ("RESPA"), taking kickbacks and unearned fees, exceeding the limitation on escrow deposits, violating the Predatory Lending Act, or violating the usury laws.