Foreclosure Offense and Defense: Lis Pendens, Usury and California Exemption for “Banks”

LIS PENDENS — see usury, Temporary Restraining Order, Lawsuit, Burden of Proof

(1) Latin for “a suit pending.” The term may refer to any pending lawsuit. (2) A written notice that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is usually filed in the county land records office. Recording a lis pendens against a piece of property alerts a potential purchaser or lender that the property’s title is in question, which makes the property less attractive to a buyer or lender. After the notice is filed, anyone who nevertheless purchases the land or property described in the notice takes subject to the ultimate decision of the lawsuit.

IN THE CONTEXT OF FORECLOSURE OFFENSE AND DEFENSE, the significance of this filing is profound and potentially complex.

  • The filing of the Notice of Sale by the Trustee in non-judicial states is the equivalent of a lis pendens in is effect.
  • All judicial states (states where the filing of a foreclosure lawsuit is required before the property can be scheduled for sale) require a lis pendens to be filed by the lender along with the suit.
  • However, in ALL cases, non-judicial or judicial, where the defensive and offensive strategies promoted by this blog are involved, it probably would be a good idea for the borrower to file a lis pendens along with any suit or emergency petition for temporary restraining order (TRO).
  • It is possible that the lis pendens, especially where a TRO is sought, will be met with a demand for bond. However, the bond requirement should be nominal since the property is already in existence and presumably will be maintained.
  • No lis pendens can be filed unless there is a “suit pending” — but once there is a pleading from the borrower seeking affirmative relief from a court of competent jurisdiction, the filing of a lis pendens cannot be stopped.
  • The foreclosing party must step forward and request that the lis pendens be removed. They will do that because any bid at the foreclosure sale will be subject to your claims in the suit you filed against the “lender” at al.
  • This is another opportunity to “win at the beginning” since the “lender” is now required to justify the its authority to have given notice of delinquency, notice of acceleration, notice of default and notice of sale. In order to do that they must file a petition or motion with the court which will be gingerly and creatively written if they understand the stakes or taken from some form if they do not understand the issues.
  • They will plead (make allegations) that can now be denied. You have effectively converted the non-judicial sale to a judicial proceeding and forced the burden of proof onto the alleged foreclosing party. Take nothing for granted, and assume nothing.
  • The attorneys for the foreclosing party probably have very little information — less than you have — and if you hit hard enough right at the beginning, you might, like thousands of other cases across the United States, find yourself walking out with an order that cancels the sale, dismisses the claims of the “lender” and perhaps the Judge’s order will even be “with prejudice, which would be the equivalent of a quiet title action, which you might pursue immediately after receiving a favorable ruling with or without prejudice.

REMEMBER, AS IN USURY, CONTRARY TO THE IMPRESSION CREATED BY THE TRUSTEE OR THE ‘LENDER’ YOUR OBJECTIVE IS TO SMOKE OUT THE FACT THAT THE ORIGINAL LOAN TRANSACTION IN WHICH THE BORROWER SIGNED THE PAPERS WAS A SMOKE SCREEN FOR A REAL “LENDER” THAT WAS NOT REGISTERED TO DO BUSINESS IN THE STATE, THAT WAS NOT CHARTERED OR AUTHORIZED AS A BANK OR LENDING INSTITUTION AND THAT THEREFORE WAS A PRIVATE LENDER, THUS FORTIFYING YOUR CLAIM FOR USURY, VIOLATION OF THE DISCLOSURE REQUIREMENTS FOR TILA, FRAUD, BREACH OF FIDUCIARY DUTY ETC.

IT IS THIS STRATEGY THAT COULD ENABLE YOU TO CLAIM USURY BASED UPON INFLATED APPRAISAL OF THE PROPERTY — EVEN IN STATES LIKE CALIFORNIA WHERE THE CONVENTIONAL WISDOM IS THAT USURY DOES NOT APPLY BECAUSE BANKS ARE EXCLUDED.

  • YOUR ARGUMENT IS THAT THE BANK WAS MERELY A STAND-IN, CONDUIT OR MORTGAGE BROKER, NONE OF WHICH BRINGS THEM WITHIN THE EXEMPTIONS FOR USURY. THE REAL LENDER WAS NOT A BANK AND WAS HIDING BEHIND A FINANCIAL INSTITUTION TO CREATE THE APPEARANCE OF BANK INVOLVEMENT.
  • BY NOT RECORDING PROPER ASSIGNMENTS, STATE LAW REGARDING TRANSFER OF INTERESTS IN REAL PROPERTY WERE VIOLATED, STATE LAWS REQUIRING THE PAYMENT OF FEES AND TAXES FOR RECORDING INSTRUMENTS ON REAL PROPERTY WERE VIOLATED, AND STATE LAWS REQUIRING REGISTRATION AND CHARTERS TO DO BUSINESS WERE VIOLATED WITH THE WILLING COMPLICITY OF THE “LENDER”.
  • THUS A COMPLAINT WITH THE STATE BANKING COMMISSION AGAINST THE “LENDER” WOULD BE APPROPRIATE FOR FRAUDULENTLY REPRESENTING ITSELF TO BE THE REAL LENDER AND BEING A CONSPIRATOR IN AN ILLEGAL SCHEME TO ISSUE UNREGULATED SECURITIES.

NOTE: Most of what is said here assumes that securitization was involved. In situations where the “lender” retained the loan, only some of these strategies apply.

6 Responses

  1. Thanks for this last piece with info on usury and lis pendens. Your insight is really helpful to a starting attorney.

  2. Alina,

    Here’s what happened in one such situation…….not quite like the circumstances that would inure from contemplated cases at livinglies
    however; but relevant I think ………………

    ——————————————————————————————

    I JUST STUMBLED ON THIS A FEW WEEKS AGO AND SAVED IT FOR REFERENCE:

    Foreclosure Purchase, The Nightmare Around The Corner
    Gerald Egbase

    Provided by Law Offices of Egbase and Associates

    Buying a property at an auction or foreclosure sale is often a sweet deal to an investor or buyer. However a series of nightmares could be generated afterwards if the chain of title at some point involved a fraudulent transfer.

    The “bona fide Purchaser “status can not really prevent the genuine owner from getting his or her title back. Series of California cases provide that a Deed or Title to a property is void if it is obtained from the legal title possessor by or through fraud. The same rule applies to the re-conveyance of the property interest under a deed of trust as to the conveyance of property by grant deed.

    Void deeds are even void as to bona fide purchasers and encumbrancers. An instrument wholly void cannot be made the foundation of a good title, even under the equitable doctrine of bona fide purchase. In such action, the mere fact that an encumbrancer or subsequent buyer acted in good faith in dealing with persons who apparently held the legal title is not in itself a sufficient basis for relief.

    Consequently, where title to a property has been fraudulently taken from an owner, the chain of title is shattered by the original sin (the fraud). No amount of payment or lack of knowledge of the original sin can absolve a subsequent buyer or lender of the poison that was generated at the inception of the fraud.

    This situation generated a sad end for a few investors and lenders when I represented a Victim, in Glendale Superior Court, whose title to his property had been fraudulently obtained by smooth talking real estates fraudsters. The bad guys got my client to transfer title to them under a pretense that they were assisting him to refinance the loan on his property.

    By the time the victims retained the services of my office, their property had undergone about five other transfers and multiple loans taken out on it. When one of the subsequent buyers defaulted, the property was sold at a foreclosure sale to a prominent Los Angeles Real Estate Investor.

    Despite the series of transfers, purchases, loans and encumbrances by persons and lenders who knew nothing or had nothing to do with the original fraud, we prevailed over the lenders summary judgment motions. We got a judgment that declared all subsequent title and deed of trust, loans and encumbrances null and void. The property was returned back to my client and cleared of all subsequent interest and deed of trust.

    I was able to get the same result in Los Angeles Superior Court for a lady whose title was fraudulently taking from her during a purported reverse mortgage transaction. Title to her property was also transferred several times and encumbered by multiple deed of trust. The Los Angeles court ruled that all subsequent title and interest are void regardless of whether the subsequent takers knew of the original sin (the original fraud) that took title from my client. She got her home back free of all the loans and interest.

    Now imagine your investment to be part of one of the scenarios I just described, or you were one of those that purchased the property belonging to one of my clients I just described. According to the provisions of the law, your later obtained interest would be declared void by virtue of the original sin. Can you really afford that?

    Who is doing your due diligence inquiry before you put your money into the foreclosure deals? The lenders and title companies in these cases did put up a good fight but still lost their monies. Do you really know how the Supreme Court has resolved the issue of who is a bona fide purchaser? It is much deeper than mere tendering funds and not having actual knowledge of a prior inappropriate transaction.

    ABOUT THE AUTHOR: Gerald Egbase
    The Law Offices of Egbase and Associates is a comprehensive law firm located in Los Angeles, California. Our commitment to excellence and providing effective solutions for our clients has made this office one the most dynamic firms in Los Angeles. We provide individualized services in many areas of the law but more notably real estate law, personal injury, probate and estate planning, bankruptcy, and immigration.

    Copyright Law Offices of Egbase and Associates

    More information about Law Offices of Egbase and Associates

  3. Deontos,

    That is very interesting and poses a question. If the lender is successful at removing a lis pendens prior to the conclusion of a lawsuit and sells the property at REO, what happens if the homeowner wins the suit?

    Basically, the person who wrote this article is instructing lenders on another method of stealing someone’s property.

  4. I HAVE DELIBERATELY POSTED THIS ON TWO THREADS SO IT GETS NOTICED BY ALL WHO MAY BE AFFECTED OR HAVE VITAL INTEREST.
    ——————————————————————————

    If you are in Calif you should likely be aware of this lenders
    advisory to DEFEAT homeowner use of Lis Pendens……………..

    CA: Early Removal of a Lis Pendens

    by Stephanie Goble
    Barrett Daffin Frappier Turner & Engel, LLP – USFN Member (TX)

    A lis pendens or a notice of pendency of action is recorded in the real property records in connection with a lawsuit. To a loan servicer or lender in the process of a foreclosure action, a lis pendens will likely be recorded against the property by the borrower or junior lienholder in connection with its lawsuit so the property cannot be sold at REO without resolution of the lawsuit. However, one does not always have to wait for resolution of the entire lawsuit before having the lis pendens expunged or removed from the property.

    The effect of a lis pendens is to place a cloud on title to the real property and to give constructive notice of the lawsuit to third parties. Once it is recorded in the real property records, any subsequent purchaser will take the property “subject to” the lawsuit and the court’s orders against the property.

    The California statutes provide that the lender can take steps to expunge the lis pendens and effectively clear the title — and that these steps can be taken prior to the resolution of the lawsuit. This allows the lender to have the cloud on title removed prior to the resolution of the entire lawsuit, thereby empowering the lender to sell the property at REO without waiting the 1-2 year time period for a courtroom trial.

    The area of lis pendens is governed in California by Section 405, et seq. of the California Code of Civil Procedure. The statute is written toward preferring the removal of the lis pendens wherever possible, and the burden of proof is on the plaintiff’s attorney to keep the lis pendens in the real property records. In California Code of Civ. Pro. § 405.30, upon motion by the lender’s attorney, the court will review four case-specific areas to determine if the lis pendens can be removed.

    First, the plaintiff’s lawsuit must contain a real property cause of action. If the lawsuit is only regarding the loan terms and does not affect the deed of trust or property securing the loan, then the court should order the lis pendens expunged.

    Second, if the plaintiff’s lawsuit does contain a real property cause of action, then the plaintiff’s attorney must prove by a “preponderance of the evidence” (meaning, more likely than not) that the plaintiff’s lawsuit is for a valid real property claim, and that the plaintiff will likely be successful at trial.

    Third, the plaintiff must prove that the proper statutory notice procedures were performed in recording the lis pendens. To be valid, a copy of the lis pendens must be provided to all parties with interest in the property by either registered or certified mail, return receipt requested before the lis pendens is recorded in the real property records.

    Fourth, the court will look to see if monetary relief would be adequate to redress the plaintiff’s grievances. If financial recovery alone under the lawsuit would be sufficient, the court should expunge the lis pendens. In reviewing “adequate relief,” the statute specifically provides that the plaintiff’s argument that his real property is unique and one of a kind will only apply where the property is a single-family dwelling that the plaintiff intends to occupy.

    Given that the statute is drafted toward the removal of the lis pendens unless its protection is specifically required, that the burden of proof to keep the lis pendens is on the plaintiff’s attorney, and that the removal of the lis pendens would allow the lender to sell the property at REO prior to full resolution of the lawsuit, then it would be advisable for the lender to discuss this opportunity with its outside counsel in defending litigation.

  5. Errors>>Errors>> in previous post

    ** ARE the reconveyance company allowed to have such a control on the real estate market, being that I was mislead and there procedures had some error in them.. I started to look into the company after the fact. I thought they were just a little hole in the wall company not being very professional about it when I called.. As it turns out they give seminars on buying foreclosed homes. The owner himself talks about being able to buy back propertys that go back to the beneficiary for dollars over the opening bid because there is no bidding war.
    I feel like I was the prey on one of those illegal trips were they bait the bears and wait..

    * Just does not make sense to anyone how a property that clearly is opening cheap, and I had it on the MLS and all over the internet with great pictures and a listing price up to 400,000 which was still under valued.. And there was not a bid.

  6. A question for Neil.

    Neil considering that Sept. 10 was the one year anniversary of the bank buying back my house at the court auction… you know the circumstances.

    I have found an attorney that may help with a Quiet Title action. Is it too late to file such an action?

    Thanks for your help.

    JD

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