Professional Documents
Culture Documents
Califorina Foreclosures
Califorina Foreclosures
Important Notice
The information in this paper is not intended as legal advice. Reading this paper does not
make the reader the author’s client and does not make the author the reader’s legal
advisor. This work contains the author's thoughts, understandings, and assessments
about public matters, which, of course, include laws and judicial pronouncements. It is
supported by reference to legal authorities and judgment calls in order to facilitate
assessment by those of the legal community wanting to help homeowners threatened with
foreclosure in California by persons who have not proven they are owed a debt secured
by the house.
1
I am a retired attorney. I have never been a California attorney but I have spent considerable time studying
California residential foreclosure law. I currently am a legal analyst and legal writer. I occasionally consult on
foreclosure cases when the homeowner has legal representation. Constructive criticism is always welcome
because my goal is to provide accurate and useful information. The author can be reached at [email protected].
Page 1 of 48
Contents
I. THERE IS HOPE FOR CALIFORNIA’S HOMEOWNERS ................................................................................. 3
II. THE 2924 SCHEME’S NONJUDICIAL FORECLOSURE – THE FIRST MOVE OF THE FORECLOSURE TWO-
STEP............................................................................................................................................................... 7
First reasoning ........................................................................................................................................ 12
Second reasoning .................................................................................................................................... 14
Third reasoning....................................................................................................................................... 16
Fourth reasoning .................................................................................................................................... 17
Fifth reasoning ........................................................................................................................................ 20
Sixth reasoning........................................................................................................................................ 21
Seventh reasoning ................................................................................................................................... 22
Eighth reasoning ..................................................................................................................................... 23
Hear the correct legal music of California’s foreclosure two-step. ....................................................... 24
III. UNLAWFUL DETAINER LAWSUIT FILED PURSUANT TO CCP Section 1161a(b)(3)… THE SECOND MOVE
OF THE FORECLOSURE TWO-STEP .............................................................................................................. 25
A. Prepare for the UD Fight .................................................................................................................. 28
B. Reclassification – Do not accept the UD Forum of the foreclosure two-step. .................................. 29
B.1 Why reclassification is necessary. .............................................................................................. 29
B.2 The UD is an unlimited civil case if all conditions are not satisfied for limited case status
pursuant to CCP Section 85. ............................................................................................................... 31
B.3 The “amount in controversy” aspect of reclassification. ............................................................ 31
B.4 Complexity is a factor that requires reclassification. ................................................................ 32
B.5 Some relevant reclassification rules and procedural thoughts. ................................................. 37
C. Identity of the UD Plaintiff is not important to homeowner defense ................................................. 39
IV. UCC AND RELEVANT HISTORY ............................................................................................................... 41
V. CONCLUSION.......................................................................................................................................... 47
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I. THERE IS HOPE FOR CALIFORNIA’S HOMEOWNERS
The foreclosure machine2 and its clusters of attorneys across California have
found that a two-step foreclosure process almost always works to take the house
away from the homeowner. The dance has become a traditional pattern of abuse of
homeowner rights. Neither California nor the homeowner defense bar has done
much to curb the mass taking of homes by persons 3 who have not and are not
required through this two-step to prove they are owed a debt secured by those
houses.
the eviction of the homeowner. The first movement of this two-step involves
California Civil Code §§ 2924, et seq (the “2924 Scheme”) authorizes a private
(the “NJF”). The 2924 Scheme applies to loans secured by a deed of trust or a
2
Many companies make up what I refer to as the foreclosure machine. They don’t refer to themselves this way
and I doubt they have badges or secret handshakes that proclaim their membership in what I think is clearly an
organized foreclosure network. This network, whether united by common business practices or contractual
arrangement, does the bidding of the mortgage finance industry. A foreclosure shop supporting this network may
be a bank, loan servicer, foreclosure trustee or law office. My experience and research convince me they are cut
from the same cloth, use the same tactics, and have the same vulnerabilities. I coined this descriptive phrase for
their group as an educational tool used in my book, Fighting the Foreclosure Machine (2012), available at
www.amazon.com.
3
‘Person’ meaning an individual or business entity.
4
This paper is about homeowner rights and residential foreclosures in California. No attempt is made to address
commercial or non-residential foreclosure issues.
Page 3 of 48
mortgage that contains a power of sale (each of which is referred to herein as a
“mortgage lien” or “lien”). The NJF process leads to a foreclosure sale at which
the high bidder (the “foreclosure buyer”)5 most often receives a trustee’s deed in
return for payment 6 of the bid amount. The second movement of this California
two-step is the unlawful detainer action or lawsuit in which the person filing the
process or action). 7
substantive law for the past 15 or so years. Pushing, shoving and disregard for
5
The foreclosure buyer is the high bidder at the NJF sale. This person can be the alleged beneficiary under the
deed of trust who starts the NJF process or a high bidder who had no previous claim under the mortgage lien.
Usually the high bidder is the alleged beneficiary who causes the NJF sale to occur.
6
Payment can be by cash but often is nothing more than a credit bid of an amount allegedly owed by the
homeowner to the person claiming ownership of the deed of trust or mortgage. § 2924h(b) permits the person
alleging to own the beneficial interest under the mortgage lien to bid the amount alleged due under that
instrument, but there is no requirement under the 2924 Scheme for that person to prove pursuant to applicable
law that said person is actually owed a debt secured by the house under that mortgage lien. That means that
whatever number is alleged owed under the lien may not what is actually owed the person entitled to enforce the
debt, i.e., the alleged amount due is fantasy until it is asserted as due and proven by the person actually entitled to
enforce the debt.
7
CCP § 1161a(b)(3) is the statutory authorization for filing a summary proceeding, i.e., the UD, but only if a NJF
sale has happened “in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed
of trust.” This is the sole authorization in the judicial system for subjecting the homeowner to a quickie, small
claims type of eviction proceeding like a UD case. An NJF sale has to first occur before this § 1161a(b)(3) can be
used. The unlawful detainer action is mostly used by landlords to evict tenants, but this paper is not about
landlord-tenant matters. It is solely about that the wrongs suffered by homeowners subjected to the UD forum
under this statute and how to possibly rectify that problem by using the correct law of California.
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California has law designed to protect homeowners and to afford them a fair and
The music of the law I find in California is soothing. It makes the NJF
process less intimidating and legally unimportant. Its shows that the UD lawsuit is
an improper forum for resolution of issues involving the NJF sale, the filing of the
UD case, and the homeowner’s right to know if a debt is actually owed to the
judges are not aware of this music, however, and hear only the incorrect legal tune
The homeowner should not feel badly about questioning the legal right of
mortgage payments does mean that the homeowner’s debt is owed to just whoever
demands payment even when that person knows that mortgage payments are not
foreclosure machine so the fact that a person is familiar with payment history
person actually owed the debt by law. California’s Supreme Court knows that
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demands and threats are made by persons with no right to do so. “Banks are
neither private attorneys general nor bounty hunters, armed with a roving
commission to seek out defaulting homeowners and take away their homes in
actually owed a debt secured by the house. Most businesses have no problem with
this concept, but the foreclosure machine does. Its routine is to insinuate rather
than prove alleged rights in the debt. No reputable business would balk at giving
proof of an invoiced amount, so the common antics of the foreclosure machine are
reasonably questioned.
Until the person demanding payments under the loan proves its authority to
enforce the debt under the fact-intensive provisions of the Uniform Commercial
Code (§ 1101 Com., et seq., the “UCC”), that person is not owed the debt.8
Payment to a person not entitled to enforce the Note leaves the homeowner liable
to the person who is actually entitled to enforce the Note, if such person still
8
The debt instrument of a routine residential loan (the “Note”) is acknowledged as a negotiable instrument. See,
Yvanova, at 927-928. Division 3 of the UCC is California’s law of negotiable instruments and it defines the rights
and duties respecting the Note. The right to enforce the Note is a cause of action that requires the person claiming
that right to prove with admissible evidence its entitlement to enforce the Note pursuant to § 3301 Com. No such
proof means no right to enforce and a homeowner who refuses to honor a demand for payment by a person who
has not proven its right is not an event that dishonors the Note or creates a default. § 3501(b)(3).
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exists.9 Finding a way to make the attacking person prove its alleged rights is
two-step is the best way to make certain that the homeowner does not lose money
A homeowner knows she has missed one or more mortgage payments before
a notice of default arrives. The notice references various parts of the 2924 Scheme
arrearages and threatens acceleration of the debt and foreclosure pursuant to the
2924 Scheme if those payments are not made. The notice sounds official and
creates a lot of anxiety that is not warranted once California’s NJF is better
understood.
rights in the house. Most think foreclosure means that the homeowner loses title,
ownership and ultimately possession of the house unless the homeowner finds a
foreclosure authorized by the 2924 Scheme uses forms of the word ‘foreclose’ but
9
Payments, even in the form of a taking of the house, to a person not owed the debt under the Note do not
reduce the homeowner’s debt obligation. §3602(a) Com. (the debt is reduced only for payments made to the
person entitled to enforce the Note at the time of the payment or that person’s bona fide agent). The UCC has no
provision authorizing debt reduction even if a court orders payment to a person not authorized to enforce the
Note for itself or the real person entitled to enforce the Note.
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in a very narrow and technical sense that has nothing to do with how most people
Study of California’s NJF process over the past few years has taken me full
circle. Initially, the 2924 Scheme and its use of the word foreclose made me think
that the NJF process was an important legal event that would result in loss of the
house unless a way was found to stop or avoid the NFJ sale. Now I see that the
NJF is not very important to the protection of homeowner rights against false or
mistaken claims under the Note and the collateral security instrument, which is
In fact, the NJF sale is not a sale of title or ownership of the house and does
not eliminate the homeowner’s right to possess the house. Nor does the 2924
Scheme creates a presumption that the NJF process is a statement as to the merit or
validity of the mortgage lien or the right of the person pulling the NJF strings 10 to
enforce that lien. With a better understanding of the unique substance of the 2924
Scheme, the foreclosure defense bar and its clients can find more and better
10
A trustee under a deed of trust has no independent authority to initiate or conduct an NJF process without the
approval or instruction of the beneficiary under the deed of trust, whether that authorization comes directly from
the beneficiary or from an agent who is doing that beneficiary’s bidding. The trustee most often is the person,
however, that conducts the issuance of notices and the NJF sale of the 2924 Scheme.
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Civ. Code § 2924f(b)(8)(A) requires publication of a formal notice of a
trustee’s sale11 and defines what California authorizes to be sold at the NJF sale:
(8) (A) On and after April 1, 2012, if the deed of trust or mortgage
containing a power of sale is secured by real property containing from
one to four single-family residences, the notice of sale shall contain
substantially the following language, in addition to the language
required pursuant to paragraphs (1) to (7), inclusive: NOTICE TO
POTENTIAL BIDDERS: If you are considering bidding on
this property lien, you should understand that there are risks
involved in bidding at a trustee auction. You will be bidding on a
lien, not on the property itself. Placing the highest bid at a
trustee auction does not automatically entitle you to free and clear
ownership of the property.
This statutory law defines what the trustee is selling and thereby defines
what is conveyed by the trustee’s deed to the high bidder at the sale. It makes clear
that the only thing being sold and bought at the NJF sale is a lien.
this sale is not a sale of title or ownership of the house. This alert is confirmed by
the 2924 Scheme which is also devoid of any representation or warranty that the
mortgage lien is legally valid or being sold by a person who has authority by law to
sell it.
11
An NJF process is typically started and conducted by a person claiming to be the trustee under the deed of
trust. After the NJF sale the trustee issues a trustee’s deed to the high bidder. The trustee is supposed to issue
notices and conduct the NJF sale as required under the 2924 Scheme.
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Lienholders sell mortgage liens every day in private transactions involving
only the seller and buyer. The assignment of a deed of trust is an example of such
a common and private transaction. This happens without the formal trappings of
the NJF process. The NJF sale is a private sale with the added complication of a
statutorily required process for selling the mortgage lien. Using the NJF process is
the more expensive and time-consuming way to sell a mortgage lien. The benefit
to the foreclosure machine is that the NJF sale and resulting trustee’s deed give an
appearance of state-backed legality that is not present but the appearance is useful
defense attorneys. If the foreclosure buyer is, for example, the alleged beneficiary
under the deed of trust 12 who caused the NJF to happen, that person’s post-sale
ability to brandish a trustee’s deed issued pursuant to the 2924 Scheme is a lot
more impressive than having a piece of paper that states that the alleged lienholder
assigned the alleged lien to the very same alleged lienholder. The formality of the
machine is and has been using to unfair advantage for too long.
12
Only the person entitled to enforce the Note actually owns and has the right to enforce the mortgage lien as
Yvanova affirms. The name on the lien, whether the lender or an alleged successor, may not be the person who is
actually the beneficiary at law, even though the beneficiary named in the public land records states otherwise.
The 2924 Scheme as applied does not permit homeowners to investigate or demand proof of the identity of the
true beneficiary, if any exists, under the deed of trust, so the entire NJF process takes place without the identity of
the true beneficiary being determined. As discussed below, the identity of the true beneficiary is not necessary to
the NJF process because it has nothing to do with enforcement of the Note or mortgage lien. California’s
imprecise use of words in the 2924 Scheme is no doubt a significant factor that has led to confusion and
deprivation of homeowner rights during the 21st century.
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You may not have heard that the NJF process only involves a sale of the
One unpublished decision mentions this statutory section only to state that the
court would not discuss it.13 This statute has been effective since April 1, 2012 as
published case law suggests that homeowners and their attorneys have not known
about it. 14 Otherwise, one would expect an appellate case to have discussed a
homeowner’s concern about the legal substance of an NJF sale in light of Section
2924f(b)(8)(A). 15
order to make the 2924 Scheme consistent with what was already California’s law.
This section does not appear to have created new law in California. Whether a
13
Collins v. Nationstar Mortgage, LLC, Case No. C078530, (CA App 3d Dstr 5/31/18) (unpublished), p 16.
14
It is possible that one or more foreclosure defense attorneys is already aware of this problem. It is possible that
the content of this paper previously has been advanced on behalf of a client and that the particular case was not
taken through an appellate process available to my legal search engine. If you are such an attorney, I’d like to hear
your experience with the matters discussed in this paper. Please contact me at [email protected].
15
The lack of decisional law has a positive aspect which may help homeowners in future legal battles. There is no
current decisional law that refutes the clear language of § 2924f(b)(8)(A). Any case cited by an opponent in an
effort to argue that an NJF sale is a sale of tittle, ownership or right to possession will be distinguishable and
unpersuasive because whatever the case cited, it will not likely mention or address the express provision of §
2924f(b)(8)(A).
Page 11 of 48
perspective helps appreciate the merit and consistency of California’s law
respecting the NJF and the law applicable to a legal foreclosure, especially when a
The following reasoning supports the proposition that the NJF sale involving
a Note under California law (i.e., a negotiable instrument), even prior to April
2012, was only a cumbersome sale of an alleged mortgage lien but not a sale of
First reasoning
California’s lienholder law drives the result of Civ. Code Section
contract for a lien, transfers no title to the property subject to the lien.” CA Civ.
Section 2888. Regardless the terms of the deed of trust, Section 2888 states that
the deed of trust is just a lien that “transfers no title to the property.” This statute
was enacted in 1872 so it has been California’s law for a long time and definitely
applies to every residential loan made this century. Section 2888 also has not been
discussed in appellate residential foreclosure cases during the 21st century. This
too may help explain why homeowners are unfamiliar with California’s law
In a 1982 case a beneficiary under a deed of trust filed a lis pendens (notice
of a pending law suit) against real estate in his effort to secure payment under the
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deed of trust but the appellate court required expungement of that lis pendens. The
court held that “lien [i.e., the deed of trust] did not transfer any interest in the title”
to the property thus making the lis pendens an improper cloud on the land rather
than a title interest qualifying for lis pendens protection. Urez Corporation v. The
Superior Court, 235 Cal.Rptr. 837, 842, 190 Cal.App.3d 1141 (CA App 2d Dstr
CCP Section 2924f(b)(8)(A) and CC Section 2888 are consistent. All that a
trustee under a deed of trust has to sell is an unproven mortgage lien, not title or
ownership of the house. The homeowner continues to own and control both the
title and ownership of the house after securing her mortgage debt with a deed of
trust. The trustee under that deed of trust has limited rights but does not get title or
A homeowner gives limited rights to a trustee under a deed of trust, but not title or
ownership of the house and the homeowner retains the right to sell or transfer the
Second reasoning
Malkoskie v. Option One Mortgage Corporation, 188 Cal.App.4th 968
(Calf. App. 2nd Dstr. 2010) involved a question as to the effect of a judgment
issued in a UD case regarding title to the house and validity of the NJF process and
sale. Here the homeowner stipulated to a judgement in the UD case and was
forcibly evicted from the house. She then filed a regular, unlimited civil action in
which she “asserted claims for declaratory relief, quiet title, cancellation of
wrongful eviction and negligence”. Id. at 972. She thought that the UD case was
only about possession and that she had a right to litigate related substantive legal
issues in a regular, unlimited civil case. The California judiciary said she was
wrong.
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Malkoskie analyzed CCP Section 1161a(b)(3) and the meaning of a UD
action filed under that statute, which is the sole legal authority for using the limited
case UD format to evict homeowners after an NJF sale. Malkoskie affirms that the
UD case is supposed to be about the owner regaining possession of its real estate
whereas post-NJF sale use of a UD case is actually litigation about title and
ownership of the house, the validity of the NJF process and legal causes of action
that are rooted in the same facts regarding those matters. Malkoskie holds that the
UD judgment under CCP Section 116a(b)(3) is a final judgment regarding the title
and ownership of the house and the validity of the NJF sale. Id. at 973-974.
Judgments issued in such cases can have preclusive effect that bar future litigation
about title and the foreclosure irregularities and all causes of action grounded in the
same factual circumstances. Id. at 971. Malkoskie effectively holds that courts by
judgments resolve issues regarding title, ownership and right to possession of real
estate, and that those matters are not resolved or established merely as the result of
Hudgins, 20 Cal.3d 251 (1977) which relied on earlier California law as cited in
Vella. These and other California decisions exist because an NJF process pursuant
to the 2924 Scheme does not establish title or ownership in the high bidder at the
foreclosure sale. If the NJF sale had conveyed title or ownership of the house to
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the foreclosure buyer the only issue for the UD case would have been getting the
court’s assistance in delivering possession of the house that had already been
conveyed to the foreclosure buyer. That, however, is not what the UD case is
about following an NJF sale. California’s judiciary makes clear that title and
ownership of the house are resolved by court action, not by nonjudicial action of
private persons even if they fully comply with the procedural requirements under
Third reasoning
challenge to the 2924 Scheme spoke to the legal effect of what the foreclosure
buyer acquired by the trustee’s deed. Garfinkle v. Superior Court, 21 Cal.3d 268
(1978). Garfinkle involved an NJF sale followed by the foreclosure buyer’s later
contract like “any other type of contract.” Garfinkle views the trustee’s deed as a
Fourth reasoning
if conducted by or for the person actually entitled to enforce the residential loan
note (the “Note”) pursuant to the Uniform Commercial Code (the “UCC”), and
regardless whose name is on the deed of trust as beneficiary. Yvanova, Id. at 927-
residential foreclosure is legal. The 2924 Scheme does not mention the UCC and
does not mention or require proof of right to enforce the Note. This is because the
2924 Scheme only concerns a complicated way to sell a mortgage lien. The 2924
Scheme is not about who has the right to enforce the Note or that lien. It does not
result in a legal foreclosure, so the 2924 Scheme and a resulting NJF sale are not at
16
Yvanova states that the promissory note of the loan is “a negotiable instrument.” Id. at 927. California’s sole
law of negotiable instruments that applies to enforcement of residential loans is Division 3 of the California’s
Commercial Code, i.e., §§1101, et seq. (the “UCC”).
Further, California follows the legal principle that the ‘lien follows the debt’ which is old common law that is now
California statutory law pursuant to § 1084 Civ. and § 9203(g) Com. This means that the person entitled to enforce
the Note is the person who owns the deed of trust or mortgage collateralizing that debt and whether or not that
person’s name is on the security instrument. The bottom line is that the law of negotiable instruments now found
in Division 3 of the UCC, guides determinations as to whether a foreclosure is legal, at least when a proper defense
is raised against a person who has not proven with admissible evidence its right to enforce the Note.
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applications of the 2924 Scheme demonstrate that it is not law about a legal
foreclosure.
Unfortunately, the 2924 Scheme uses words that have multiple meanings
instrument law is not the same as the law applicable to debt not based upon a
negotiable instrument as defined by Section 3104 Com. Simple words like debtor,
creditor and default have vastly different meanings and requirements of evidentiary
proof under these two very different bodies of law. Under the UCC, only the
person entitled to enforce the Note has the right to demand payment (i.e., the right
even if a payment has been missed, until and unless that person comes forward,
proves its enforcement right, and makes demand for payment. No other person has
a right to enforce the Note so no other person has a right to argue whether or not a
provisions of Division 3 of the UCC to resolve the question of who has the right to
enforce the Note. Documents like assignments of the mortgage lien found in
rights in the Note. Enforcement of lien debt that is not evidenced by a negotiable
like assignments of the mortgage lien. The 2924 Scheme and related case law
Page 18 of 48
make no effort to apply legally correct definitions to those highly technical words.
The confusion that has been caused by imprecise use of legal language in the 2924
homeowners.
comprehensive body of law and that courts are not permitted to supplement that
law with legal definitions or implicated legal authorities not expressly stated in the
2924 Scheme. See Debrunner v. Deutsche Bank National Trust Co., 204
Cal.App.4th 433, 441 (Cal.App. 6th Dstr. 2012) and Moeller v. Lien, 25
Cal.App.4th 822, 830 and 834 (Cal.App. 2nd Dstr. 1994), and the hundreds of cases
blanks not expressly stated in a statute regarding legal procedure and definitional
California legislature that enacted it. They are empowered to do this so the legal
system can function. Without that authority every statute would have to restate
volumes of collateral law and legal definitions which are already part of the legal
system.
no need to impose upon the 2924 Scheme detail about debt enforcement from
California’s UCC and other bodies of law that already define the undefined terms
Page 19 of 48
of the 2924 Scheme. Judicial determinations under the 2924 Scheme are an
of the unique substance of an NJF sale, which is not about an effort to enforce or
even validate the mortgage lien that is being sold. The 2924 Scheme’s lack of
definitions and detail about debt enforcement law affirms that the NJF process is
instrument, is involved. If an NJF sale was intended to enforce the debt and to
transfer the house by foreclosure, the legislature would have made the 2924
a legal foreclosure.
Fifth reasoning
Court holds that no foreclosure is legal unless undertaken by the person entitled to
enforce the Note. Yvanova (2016), Id. Court of Appeal decisions consistently
maintain that the 2924 Scheme does not require proof of right in, or possession of,
the Note during the NJF process. Debrunner v. Deutsche Bank National Trust Co.,
204 Cal.App.4th 433, 441 (Cal.App. 6th Dstr. 2012) (“There is no stated
Page 20 of 48
beneficial interest in the Note to foreclose.”). Debrunner is currently followed in
federal and California cases. Yvanova and the Debrunner line of authorities are
not in conflict even though one requires compliance with the UCC and the other
holds that the UCC is not important to the NJF process. These two legal
authorities are not in conflict because they are not addressing the same subject
Debrunner line of authorities concern an NJF process which is not about debt
enforcement or foreclosure. If this were not so, the California Supreme Court
surely would have overruled the long line of NJF related cases that follow
foreclosures as stated by Yvanova. The 2924 Scheme defines the mere sale of the
lien as a ‘foreclosure.’ Sadly, that is misleading, but California has a right to define
things as it wishes even if the statutory meaning in the 2924 Scheme is different
Sixth reasoning
California follows the legal principle that the ‘lien follows the note’ meaning
that the person entitled to foreclose does not have to hold an assignment of the
deed of trust or mortgage. Yvanova, Id. at 927-928; Lewis v. Booth, 3 Cal.2d 345,
349 (1935) (“A lien is but an incident of the debt secured, and cannot be
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transferred apart therefrom. A transfer of the debt carries with it the lien.”); Section
1084 Civ. (“The transfer of a thing transfers also all its incidents, unless expressly
excepted; but the transfer of an incident to a thing does not transfer the thing
itself.” Enacted 1872.); and Section 9203(g) Com. (providing that the security for
the Note belongs to the person entitled to enforce the Note). This law, however, is
regarding who has a right in the mortgage lien is not applicable or relevant to the
2924 Scheme because the NJF sale does not involve enforcement of the lien, nor
title nor ownership of the house. The identity of the person to whom the mortgage
lien belongs is not an issue that has to be resolved when the unproven mortgage
lien is sold to a buyer who takes it without representation or warranty from the NJF
seller.
Seventh reasoning
California law maintains that only the person entitled to enforce the Note
can prosecute a legal foreclosure (Yvanova, Id.; and Fourth Reasoning and Fifth
Reasong, above) and also that the mortgage lien belongs to the person entitled to
enforce the Note whether or not the person is the named beneficiary or an assignee
Page 22 of 48
permits a person claiming beneficial interest in the mortgage lien to make a credit
bid at the NJF sale of the alleged but unproven amount due to that person under the
mortgage lien. The 2924 Scheme does not require the credit bidder to prove
enforcement right in the Note and, therefore, does not require proof that said
person is owed a debt secured by the mortgage lien. This too supports the
conclusion that the NJF sale does not involve a legal foreclosure when a negotiable
instrument is involved 17 and that the NJF sale is only a transfer of an alleged
Scheme and its NJF process would require satisfaction of the elements of a legal
foreclosure pursuant to the UCC and as required by Yvanova. The credit bid of an
amount unproven as actually owed to the NJF seller does not impact the
homeowner, so the number whether or not true or accurate should not weigh
heavily on the homeowner’s decision regarding how to respond to the NJF sale.18
Eighth reasoning
The 2924 Scheme mentions, but does not define, the term ‘bona fide
purchaser.’ The meaning of that phrase under the 2924 Scheme was addressed in
Melendrez v. D & I Investment, Inc., 127 Cal.App.4th 1238 (CA App 6th Dstr
17
California recognizes that the typical residential loan promissory note is a negotiable instrument (Yvanova, id.).
This paper, accordingly, addresses only the substance of the 2924 Scheme when the debt instrument is a
negotiable instrument.
18
This paper makes no attempt to discuss whether the foreclosure buyer might have a claim against the NJF seller
who makes a false or inaccurate credit bid because that issue is not important to homeowner protection.
Page 23 of 48
2005). Melendrez first explained the meaning of ‘bona fide purchaser’ when real
encumbrancer.” at 1255.19 Melendrez obviously understood that the NJF sale was
a sale of a lien, and not real estate, or else there would have been no need for
discussion about a person who takes or purchases a lien. It equates the 2924
Scheme’s use of ‘bona fide purchaser’ with ‘bona fide encumbrancer.’ This is
another indication that an NJF sale is a sale of an alleged lien, and not a sale of real
estate.
mortgage with a power of sale or a deed of trust. The foreclosure machine surely
knows the legal substance of the resulting trustee’s deed and that the foreclosure
buyer has no right to the house unless and until a court of proper jurisdiction later
issues a judgment creating that right. The foreclosure machine knows that the
trustee’s deed is no more of a cloud on the title of the house than the recorded
19
The Melendrez court supplemented the 2924 Scheme even though California’s judiciary also holds that the
2924 Scheme is ‘comprehensive’ and may not be supplemented. See, e.g., Fourth Reasoning and Fifth Reasoning,
above. This paper makes no effort to evaluate the merit of either position nor the reason for what is ostensibly a
contradiction indicative that either the ‘comprehensive’ proponents are wrong or Melendrez is incorrectly
decided.
Page 24 of 48
mortgage lien that gets sold under the 2924 Scheme. Neither the NJF sale nor the
trustee’s deed is important because neither appears to alter the homeowner’s legal
status. It is time to stop accepting the invitation to dance to the music orchestrated
by the foreclosure machine. It wants the homeowner to waste time and money
challenging the NJF process and sale. The real fight will be the court battle to
follow because the foreclosure buyer, and its successor if applicable, do not own or
have rights in the house without first obtaining a court judgment against the
homeowner.20
ownership or use of the house. The second step of this two-step is, however, a
serious matter. The foreclosure machine conducts the NJF for the purpose of suing
the foreclosure machine because, and only because, an NJF sale took place. CCP
Section 1161a(b)(3). The NJF sale does not alter the homeowner’s title, ownership
or right to possess the house, but a judgment against the homeowner by a UD court
20
A homeowner who accepts ‘cash for keys’ and vacates the house under a settlement agreement usually signs
over title of the house. Without that voluntary conveyance of title, the foreclosure buyer or its successor has no
right to the house without filing a lawsuit and prevailing.
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The foreclosure machine could ignore the NJF process all together and,
instead, go directly to a regular court to foreclose on the mortgage lien but that
rarely happens. The litigation forum of choice for residential foreclosure is the
forum is used because it is does not provide a fair hearing for the homeowner who
take homes from California’s citizens. That massive success portends continued
use of the UD forum as the second step in this infamous foreclosure two-step.
That success reflects many years of homeowner defense based on ignorance of the
The UD case begins with a complaint that identifies the plaintiff who is
suing the homeowner (the “UD Plaintiff”). The UD Plaintiff could sue to get the
house by foreclosure in a regular, unlimited civil action, but the UD Plaintiff would
have to prove its right by law to enforce the debt secured by the house, consistent
with requirements of the UCC and Yvanova, Id. The UD process virtually frees the
matters.
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UD judgments have been easy to get against homeowners. This may seem
contrary to California law stated by Yvanova and within the UCC, but it is not. If a
appeal, the effect is loss of title, ownership and right of possession in the house in
have been given to the winning UD Plaintiff. The UD judgment is legal and
Plaintiff. The homeowner is permitted five days for this and five days for that and
the court will let the foreclosing plaintiff set a trial date.21 This process does not
where the judge will show up pretty much convinced that the homeowner should
lose the UD case because that is all the judge will have observed for years.
A homeowner does not have to dance this two-step just because that is what
the foreclosure machine wants. The homeowner needs to lead rather than follow.
Now that we have a better understanding of the NJF part of the foreclosure two-
21
UD plaintiffs are entitled to a legal preference of a quick trial pursuant to Code of Civil Procedure § 1179a. The
plaintiff has a right to demand that the trial take place within 20 days after the defendant makes an appearance in
the case. CCP § 1170.5(a). There is no such expedited trial preference for plaintiffs in a regular, unlimited civil case
in California.
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step, the next objective is to eliminate use of the UD form in the second movement
of this dance. California’s law offers a much better option. The UD case can be
Unless defense funds are boundless, I suggest using time and money
resources during the NJF process to prepare for the UD lawsuit that is likely to
follow in a month or two after the NJF sale. 22 California courts are accustomed to
ruling against homeowners who try to stop or delay an NJF sale. Enter the second
e.g., turning the UD case into a fair litigation forum that eliminates the UD
Plaintiff’s advantage.
UD case as an unlimited civil case. This work can be accomplished during the
NJF process. Adequate time for this work is not available after the UD case is
served on the homeowner. Advance preparation will help reduce stress, avoid
waste of money, and position the homeowner for a well-organized attack on the
22
If you think the NJF is threatened by mistake, by all means send a letter in hopes the problem will be corrected.
Writing a letter is cheap and relatively easy. An honorable person would likely thank you for pointing out a
mistake. If you request termination of the NJF process, but it keeps moving forward, preparing for the UD lawsuit
makes more sense than expending time and money fighting the right of a person to sell the alleged mortgage lien
by an NJF sale.
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An answer to the UD complaint is required within five days after service of
the complaint and summons. CCP Section 1167.3. Having prepared the motion
for reclassification before service of the UD lawsuit also makes less stressful the
timely completion of tasks like the answer and affirmative defenses 23 to the UD
complaint.
make fair and meaningful the legal fight with the UD Plaintiff. California requires
opportunity forum. The homeowner needs to use this law and to help the judge
understand the necessity of converting the limited UD case into a regular unlimited
civil case as permitted and called for under California’s law. The homeowner must
validity by silence.
unlimited civil case is the litigation mechanism that will put a heavy burden of
proof upon the UD Plaintiff. The homeowner who gets the UD case reclassified
23
See Part III.B.5, below, for discussion about the possible use of a demurrer rather than an answer to the UD
complaint.
Page 29 of 48
gains a lot more options regarding how to best protect the house and defend against
An unlimited civil case offers reasonable time within which to prepare the
case, plan a comprehensive litigation strategy, and totally change the noise of the
foreclosure two-step into workable legal music. For example, a regular unlimited
case offers the opportunity to establish by court the homeowner’s claims such as
the NJF sale was no more than a transfer of an unproven mortgage lien; the UD
Plaintiff has no right to enforce the Note and therefore no right to enforce the
mortgage lien; the UD case was knowingly filed in violation of the homeowner’s
rights; the deed of trust is an invalid security instrument if MERS is involved; the
entire foreclosure two-step violates collection and fair practices law; the filing of
cause of action); and that the title to the house should be quieted in favor of the
homeowner against all possible defendants who might assert rights in the mortgage
lien. The homeowner’s facts, the opponent’s lack of facts, and the homeowner’s
strategic plan will determine what should be sought in that litigation, but at least in
opportunity for a successful appeal should be strong because the case will be
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grounded in the most relevant law regarding the UD Plaintiff’s attempt to take the
house.
B.2 The UD is an unlimited civil case if all conditions are not satisfied for
limited case status pursuant to CCP Section 85.
A case “shall not be treated as a limited civil case unless all of the …
conditions are satisfied” under CCP Section 85. A civil case is either limited or
unlimited. If the lawsuit is not a limited civil case, it is a regular, unlimited civil
case. CCP Section 88. 24 A reclassification motion is filed in order to help the
judge understand that the UD action does not satisfy the requirements of CCP
action. A case is not entitled to limited status when (1) the ‘amount in
controversy’ is too high or (2) when the legal issues are too complicated for
Section 85(a) is that the ‘amount in controversy’ must not exceed $25,000. The
amount in controversy is not simply the amount stated in the UD complaint by the
UD Plaintiff: the law, not the UD Plaintiff’s self-serving request for a cash award,
24
“A civil action or proceeding other than a limited civil case may be referred to as an unlimited civil case.” CCP §
88.
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controls. Stern v. Superior Court (2003), 105 CA4th 223, 234. Amount in
controversy “means the amount of the demand, or the recovery sought, or the value
of the property, or the amount of the lien, that is in controversy in the action,
the UD case) is an attempt to get title and possession of the house by getting a
alleging that the case is merely about regaining possession of what already belongs
the amount of subject mortgage lien or the market value of the house exceeds
$25,000, the amount in controversy exceeds the Section 85(a) limit and the case
becomes the proper forum, even when the amount actually in controversy exceeds
$25,000t.
“relief sought is a type that may be granted in a limited civil case.” Stern v.
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Superior Court, Id. at 227 and 230-231 (discussion of elements to consider when
1161a(b)(3) are not proper unlawful detainer actions, because these cases are not
solely about possession of real estate. The unlawful detainer action has its roots in
like whether the tenant has a right to continued use of the landlord’s house or
apartment or whether the landlord is entitled to regain possession of the rental unit.
The UD case, filed after an NJF sale and pursuant to CCP Section 1161a(b)(3), is
about title and ownership of the house and all matters related to the foreclosure
homeowner resolves all of these matters, even if they are not specifically raised
during the UD case. Judgments issued in UD cases can have preclusive effect that
ownership, and all legal issues raised by the facts of the foreclosure two-step. See,
for example, Section 31.3, pp. 31-9 & 31-10, of the California Judges Bench
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31”). 25 It concludes that an unlawful detainer action is the wrong forum within
which to address complicated issues about who owns title to property and related
legal issues that can properly surface in response to the NJF process and filing of a
UD Case.
Due process rights under the California Constitution26 and the U.S.
forum because UD processes do not afford a fair and meaningful litigation forum.
Every citizen is guaranteed ‘due process’ regarding their legal rights including
their right to protect their property. The UD forum available for post-NJF sale
litigation does not provide due process protections Martin-Bragg v. Moore, 219
Cal.App.4th 367, 391 (Cal.App. 2nd Dist 2013) (“Each of these cases reflect the
courts’ recognition that when complex issues of title are involved, the parties’
Super. Ct. 166 Cal.Rptr. 306, 308, 108 CA3d 141, 146 (“The summary nature of
the defendant’s being prepared to litigate the factual issues involved in a fraudulent
scheme to deprive him of his property, no matter how diligent defendant he is, is
25
The Benchguide is a public document that has been and hopefully continues to be available online.
26
§ 1, Article I, California Constitution.
27
§ 1, 14th Amendment, U.S. Constitution.
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not great”); and Lynch & Freytag v. Cooper, 267 Cal.Rptr. 189, 192, 218
possession and incidental damages” and “It would obviously be unfair to require
the defendant-tenant to defend against ordinary civil actions under the constraints
unlimited civil case is necessary for proper adjudication of the numerous and
complicated issues that arise as a result of the foreclosure two-step and especially
In a regular, unlimited civil lawsuit, the homeowner would counter with his
or her own claims against the UD Plaintiff, and possibly other persons, so that all
legal issues and injuries suffered by the homeowner which are based on the facts
involved with the foreclosure two-step could be fully resolve as to all the parties. A
UD case does not, however, permit the homeowner to file counterclaims or cross-
claims [Benchguide 31, Section 31.3, p. 31-9] even though they are reasonable and
Plaintiff and the homeowner. The unlawful detainer process may be appropriate
for resolution of relatively simple landlord-tenant disputes but those rules are not
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claims against the homeowner, and vice versa. A proper litigation form would
afford reasonable time frames and procedures for investigation, reflection and
analysis, motion practice, trial preparation and conduct of the trial. The regular
do not.
the inadequate adjudication of the lien claim actually being prosecuted by the UD
Plaintiff. A lien is a claim for money that can be satisfied by payment or even
offset of amounts owed by the alleged lien holder to the homeowner, but the UD
forum does not permit the homeowner to reduce or eliminate the lien debt even
when the UD Plaintiff owes or may owe monetary damages to the homeowner.
The homeowner is denied the right to file counterclaims against the UD Plaintiff,
as noted above, so the amounts owed to the homeowner are not available to reduce
the amount of the lien. The homeowner cannot ask for those damages in the UD
case, has no opportunity to prove the amount of damages that should be paid by the
UD Plaintiff during that case, and cannot seek them in a different lawsuit because
California views the UD judgment as a full and complete disposition of each and
every cause of action that is grounded in the same facts underlying this common
foreclosure two-step. Part II, Second Reasoning, above. The UD Plaintiff might
owe money to the homeowner if the case were a regular unlimited lawsuit, but in
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the UD forum, the UD Plaintiff cannot be sued or made to pay those amounts and
the UD lawsuit and the court shall grant the motion “if the case has been classified
of the case, not at the time the motion for reclassification is granted. CCP Section
403.070(a).
Section 403.060, but that fee must be paid by the plaintiff when the Court rules that
case 28 but not an answer to the UD complaint. Filing the motion does not extend
28
CCP § 1014.
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the time within which to answer the UD lawsuit. CCP Section 403.040(a);
f. The caption of the motion should give notice that the case is “a
Each subsequent filing in the case, regardless the subject matter, should also have
this notice in the caption so neither the plaintiff or the judge will have grounds to
later say that you did not give sufficient notice of the reclassification effort.
the lawsuit with an “answer or demurrer.” Time for answering the UD complaint
can be put off or eliminated with use of a demurrer, but I am concerned that its use
the UD complaint but the Superior Court judges seem to be overworked and under
have seen little evidence that Superior Court judges dismiss UD cases in response
to a demurrer. Rather than risking that the judge assume that a demurrer is a
meritless delaying tactic, I think it best to file a response to the UD complaint that
says ‘bring it own’ but in a proper litigation forum. Hence, the motion to reclassify
the UD case as an unlimited civil case is the proper response. If the judge has both
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a demurrer and a motion for reclassification to decide and limited time, both may
receive inadequate attention. Rather than file a demurrer which will not likely be
granted but will be a distraction for the judge, it seems best to present fewer pages
and matters requiring the judge’s attention. This approach should also lay a solid
foundation for appeal should the judge deny reclassification because there is so
much supportive California law when a limited civil case based upon CCP Section
particularly strong. The judge has discretion to deny a demur and arguing about
whether the judge abused that discretion can be a difficult uphill battle that is not
reclassify.
Each will have the same difficulty as a UD Plaintiff against the homeowner:
neither can claim more than ownership of a purchased mortgage lien that has not
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can transfer to a successor only what the foreclosure buyer got by way of the NJF
sale, i.e., an alleged mortgage lien. Stanley v. Shierry, 322 P.2d 502, 504, 158
Cal.App.2d 373 (1st Distr. Ct.App. 1958) (“It is obvious that the grant deed
conveyed only what the grantor owned at the time of its execution.”). Defending
against the foreclosure buyer or a successor should produce the same result. Once
how it got involved, will have to prove with admissible evidence the validity of the
mortgage lien, the UD Plaintiff’s right to enforce the Note, and thereby the right to
when the foreclosure buyer has that status. If the text of the trustee’s deed states
that the NJF sale was conducted in accordance with the 2924 Scheme then the
trustee’s deed is prima facie evidence that all notices required by the 2924 Scheme
the justification for fighting about notices when the result is only a private sale of
One can argue there can never be a bona fide purchaser when the mortgage
lien sold at the NJF sale is security for a negotiable instrument like the Note. First,
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Section 2924f(b)(8)(A). Section 2924f(a) defines ‘property’ as real property and
Section 2924f(b)(8)(A) states bidders at the NJF sale are “bidding on a lien, not on
the property itself.” ‘Bona fide purchaser’ status applies only to a person who
Secondly, the mortgage lien if valid is merely security for a negotiable instrument
like the Note, and California’s law maintains that the lien is owned solely by the
person entitled to enforce the Note under the UCC. A person cannot be a bona
fide purchaser or bona fide emcumbrancer if they are on notice that someone else
may claim an interest in the lien sold at the NJF sale. Melendrez, Id. A buyer of a
law (Yvanova, Section 9203(g) Com., and Section 1084 Civ.), that the person
entitled to enforce the Note owns that lien regardless whose name is on the lien or
an assignment of it.
The UD Plaintiff, regardless its status with respect to the mortgage lien sold
at the NJF sale, has a lot to prove. The same legal and evidentiary burden is on the
foreclosure buyer and its successor, and regardless whether the foreclosure buyer
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The UCC was rarely used to resolve residential foreclosure issues in the 20th
century but is now controlling law. It became important when lenders began
routinely selling home loans. During the 20th century that seldom happened.
Lenders usually made loans, held onto and serviced them in-house, and did their
own foreclosures when homeowners failed to pay the debts. The norm of the 21st
century is for loans to be sold by the lender thereby exposing the homeowner to
later demands for payment and threat of foreclosure by persons who were not party
to the loan but claim the right to enforce it. The Note, a routine promissory note
3104 Com. That means that the UCC provides the law necessary to resolving
whether a person has the right to enforce the Note and the law that protects the
homeowner from the person demanding payment who is not entitled to do so.
the 20th century in which the legality of the foreclosure is dependent upon
negotiable instrument law. Yvanova (2016) clarifies that only the person entitled to
enforce the Note can bring about a legal foreclosure. Thus far in this relatively
young 21st century, no published California residential foreclosure case has been
decided based upon negotiable instrument law of the UCC. A handful of cases
mention the UCC but all of those cases were unsuccessful efforts to stop or to
overturn an NJF sale. See, Part II, Fourth Reasoning and Fifth Reasoning, above.
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The homeowner defense in each was reaction to a mistaken concern that the NJF
sale had already negated the homeowner’s title, ownership and right to possess the
UCC. It is time to force the foreclosure machine to face the high hurdles of that
law in order to prevent the wrong persons from taking homes to which they have
of homeowner rights grounded in the very law upon which legal foreclosures must
be established.
California foreclosure defense efforts over the past twenty years have
focused on the deed of trust, validity of assignments of real estate documents, fraud
claims related to documents recorded in the public records, and other topics that
have little, if anything, to do with the single most important requirement for a legal
that must be proven by the person claiming the right to enforce the Note. The
mortgage finance industry’s switch from ‘lenders who held’ to what in this century
is largely ‘lenders who sell’ has driven the necessity for learning and
foreclosure arena.
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In 2011 the Permanent Editorial Board for the Uniform Commercial Code
was compelled to address for the first time the growing need for knowledge of the
UCC to Selected Issues Relating to Mortgage Notes, Permanent Editorial Board for
the Uniform Commercial Code, November 14, 2011. The introduction states:
law that was not needed in residential foreclosures during the 20th century.
California first enacted the Negotiable Instrument Law in 1917 29 and eventually
rolled it into what is now Division 3 of the UCC. It was once an esoteric legal area
that is now recognized across the United States as the law necessary to
29
The Law of Negotiable Instruments was, in fact, the first uniform law ever adopted by the states, New York
having been the first to adopt this uniform body of law in 1895.
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issues and argument in California foreclosure defense and judicial pronouncements
discuss many topics but not the UCC’s provisions of negotiable instrument law.
Much education is needed and the homeowner will have to help the judges learn
If you have read my book, Fighting the Foreclosure Machine, you know that
the UCC is a highly technical, multifaceted and non-intuitive body of law, but a
body of law that provides many protections for a homeowner who faces an
opponent who does not have UCC-qualified evidence of the right to enforce the
pursuant to the UCC is complicated but can be mastered with diligence and
The UCC is highly technical law, somewhat like the Internal Revenue Code.
pieces of the UCC that may be involved in determining who has the right to
uniform law that has been adopted by every state, but with varied labels consistent
with each state’s existent statutory formatting. My book discusses the UCC in the
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Commissioners on Uniform State Laws. California’s UCC uses the same
organization and number system for all parts relevant to the UCC discussion within
Fighting the Foreclosure Machine. For example, Article 3, Section 3-301 of the
Commercial Code, Division 3, Section 3301 (i.e., Section 3301 Com.). Relating
UCC discussion in the book with California’s formatting of the UCC is not
difficult.
Every state has attorneys and law professors who are well versed in the
negotiable instrument law of the UCC but most do not engage in residential
tackle for what most will be an unfamiliar technical law, but they should be able to
do so. They can consult with attorneys well versed in the UCC. I am also
There has been a lot of fraud involving residential loans this century.
investments) has driven the need for UCC protections. The mortgage foreclosure
industry was fast to sell investment shares in packaged loan pools but lax in
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Notes in accordance with the UCC. In fact, securitization “gives rise to a
National Trust Company v. Johnston, 2016-NMSC 013 (N.M. 2016), at ¶ 21. The
failure to deliver the original notes with proper indorsements […], the routine
creation of unnecessary lost note affidavits, the destruction of the original notes,
Knowledge of the UCC can help disclose meritless litigation tactics and an
V. CONCLUSION
Hopefully, this paper will help homeowners find more and better ways to
foreclosure. The California nonjudicial two-step has been too effective too long.
The NJF sale appears to be unimportant because it does not impact the
homeowner’s title, ownership or use of the house. The UD case that follows does
not appear to have any validity as a legal forum for addressing the many post-NJF
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California law. Homeowner defense can be and should be much better than what
has been experienced thus far this century. It is time to take the lead; time to see
what the 2924 Scheme is actually about; and time to tell the UD Plaintiff that there
will be a legal battle, but in a fair and reasonable litigation forum of the
properly apply California law most relevant to the attempted taking of homes.
Finding ways to help the judge be better will help the homeowners.
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