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California Appeals Court Finds Foreclosure Valid Under Homeowner's Deed of Trust - Calvo v. HSBC Bank

November 15, 2011

Our San Bernardino foreclosure defense attorneys were interested to see a recent state appeals court case out of Los Angeles County on a fine point of foreclosure law. In Calvo v. HSBC Bank, Eugenia Calvo took out a loan that was transferred to HSBC. However, no assignment of the loan to HSBC was recorded until after the property was sold at a foreclosure sale. Calvo alleged that this violates a California law that requires the assignee of a mortgagee to record the assignment before selling the property. However, the Second District Court of Appeal found that this does not apply in Calvo's situation because the power of sale in her case was conveyed in a deed of trust, not a mortgage.

Calvo took out a home loan in 2006 from CBSK Financial Group. The loan was secured by a deed of trust identifying her as the trustor, Lawyers Title Company as the trustee, CBSK as the lender and MERS as the beneficiary. The trustee had title to the property with the power of sale, and MERS, as the lender's nominee, was given the right to foreclose, sell and take other actions on behalf of the lender. There was no assignment of the deed of trust from CBSK to HSBC, although HSBC was mentioned when Aztec Foreclosure Corporation was substituted as trustee around June 2, 2008. The substitution of trustee was also not recorded until October 14, 2008, the same day Aztec recorded a notice of trustee's sale. Calvo alleged that the foreclosure sale was not valid under California law because there was no assignment to the deed of trust from CBSK to HSBC. Defendants HSBC and MERS demurred and the trial court sustained without leave to amend. Calvo appealed.

She had no better luck with the Second District Court of Appeal. That court found that Calvo was mis-applying a law that does not apply when the right of sale is conferred by trust rather than by a mortgage. The relevant text of the law says the power to sell property of a mortgagee or "other encumbrancer" vests with the security and may be transferred when an assignment is acknowledged and recorded. However, the court said, caselaw from 1908 acknowledges that this requirement applies only to a mortgage, not a deed of trust. Every court to consider the issue since then has been federal and followed the 1908 case. Calvo argued that the case is outdated because mortgages and deeds of trust are no longer distinguishable, but the appeals court disagrees. Furthermore, it noted, MERS has the right to initiate foreclosures under California law as beneficiary, and that was true regardless of the assignment. Thus, it upheld the trial court.

As Huntington Beach foreclosure defense lawyers, we're disappointed that the appeals court saw nothing wrong with the apparent sloppy behavior of the lenders. It has become commonplace for lenders to buy and sell mortgages. When they don't do the paperwork at the time of the assignment or other transfer, this leads to a lot of missing, backdated or otherwise flawed paperwork that can sometimes derail a foreclosure. In this case, the law may have been on the lender's side, but that doesn't mean the courts should smile on these practices in general. In other situations and other states, a mortgage assignment recorded on the day of a sale can be enough to cast doubt on the right to foreclose. As Norwalk foreclosure defense attorneys, we believe every borrower, no matter how irresponsible, has a right to know that his or her foreclosure is valid.

If you believe your foreclosure is avoidable, but you can't convince your servicer to listen, stop calling the servicer and call Howard Law, P.C. for help. To learn more or speak to an experienced lawyer, you can call 1-800-872-5925 or send us a message online.

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