In Best v Ocwen Loan Servicing, LLC, a California Court of Appeal recently held that California’s Rosenthal Act (similar to but broader than the federal Fair Debt Collection Practices Act (FDCPA)) can apply to a nonjudicial foreclosure.
In Best, the Bests took out a loan for $555,000 in 2005 secured by a deed of trust on their California home. The original lender and beneficiary was New Century Mortgage Corporation, which recorded an assignment to Deutsche Bank National Trust as trustee in March 2009. Deutsche Bank as trustee assigned the note and trust deed to Deutsche in October 2009. In April 2012 Ocwen notified the Bests that it was the servicer and it ultimately again assigned the note and trust deed to Deutsche and substituted Western Progressive, LLC as the foreclosure trustee. When the Bests defaulted, Western recorded a notice of default in 2015 and a notice of trustee’s sale in November 2018, followed by a nonjudicial foreclosure sale in December 2018.
In 2016 the Bests filed an action against Deutsche, Ocwen, and others (collectively the “Bank”) in federal district court, alleging among other things that Deutsch and Ocwen lacked standing to foreclose because the assignments were invalid. They further asserted that the note was not properly securitized because it was not timely assigned to the trust in conformity with the pooling and servicing agreement. The Bests pleaded claims for relief based on breach of contract, negligence, breach of the implied covenant of good faith and fair dealing, violation of the California Homeowner Bill of Rights, rescission, cancellation of instruments and unfair competition. The Bank filed a motion to dismiss, which was granted in part with prejudice. The Court granted leave to amend a number of claims for lack of particularity. The Bank sought dismissal of the amended complaint, which eventually resulted in dismissal with prejudice. That dismissal was affirmed by the Ninth Circuit.
After the 2018 foreclosure, the Bests sued again, this time in state court. They again asserted that the assignments and the substitution of trustee was invalid and made other claims similar to but not identical to those in the federal action. They added a cause of action for violation of the Rosenthal Act based, among other things, on the nonjudicial foreclosure which occurred two years after dismissal of the federal action.
The Bank demurred, asserting claim preclusion defenses based on the dismissed federal action and also arguing separate legal grounds against each of the six causes of action. The trial court sustained the demurrer without leave to amend based solely on claim preclusion, not reaching the other arguments. The Bests appealed to the California Court of Appeal which affirmed in part and reversed in part. It held that claim preclusion did not bar the Rosenthal Act claim and others which arose from actions which occurred after the federal action was dismissed. It then addressed the claims left undecided by the trial court, ruling that the Bests could assert a Rosenthal Act violation based on the nonjudicial foreclosure, which was a departure from earlier authority.
The Court then addressed whether the Bests could assert a violation of the Rosenthal Act based on the nonjudicial foreclosure. Although many federal district court decisions had been answered in the negative the Court determined those cases had relied primarily on analogy to the FDCPA, where courts had held that foreclosing on security was not collection of an obligation to pay money. Other district courts had ruled that a debt secured by a trust deed was not a “consumer debt”. The court rejected those holdings as no longer good authority.
It looked instead to the 2019 United States Supreme Court’s decision in Obduskey v McCarthy & Holthus LLP, which it held effectively overruled all cases holding that foreclosure is not debt collection. Thus, the Court held a nonjudicial foreclosure can be ‘debt collection’ by a ‘debt collector’ so as to trigger the protections of the Rosenthal Act.”
Although the Court ruling cannot be expanded to include viable claims arising from nonjudicial foreclosures under the FDCPA because of the definition of “debt collector” in the federal act. However, even in the federal forum, such claims may be viable in California under the Rosenthal Act.
Before a creditor takes steps to foreclose on collateral it is in the best interests of the creditor to seek the advice of legal counsel so as not to run afoul of the various consumer protection laws that could stop, eliminate, or forestall foreclosure and penalize the creditor.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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