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This post is to assist homeowners in wrongful foreclosure understand principles and theories that must be well plead before their case can survive a motion to dismiss which are usually brought by the foreclosure mills in order to cover their fraud and quickly foreclose using demurrer (Motion to Dismiss), without answering the complaint.

Rules for Pleading Fraud: The elements of a fraud cause of action are (1) misrepresentation, (2) knowledge of the falsity or scienter, (3) intent to defraud—that is, induce reliance, (4) justifiable reliance, and (5) resulting damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) These elements may not be pleaded in a general or conclusory fashion. (Id. at p. 645.) Fraud must be pled specifically—that is, a plaintiff must plead facts that show with particularity the elements of the cause of action.

Homeowners should be careful here as foreclosure mill counsels may sometimes allege that in their demurrer, that facts establishing detrimental reliance were not alleged.

Homeowners should plead each cause of action such that only the essential elements for the claim are set forth without reincorporation of lengthy `general allegations’.

Homeowners should avoid pleading allegation is a general allegation of reliance and damage, but should rather identify the particular acts homeowners took because of the alleged forgeries that resulted to injury to homeowners. If you did not plead that way even if you forgot to identify the action you took, the court will conclude that similarly, you did not identify any acts that did not take because of your reliance on the alleged forgeries, and therefore will conclude that your conclusory allegation of reliance is insufficient under the rules of law that require fraud to be pled specifically. See (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.)

In other words, the `facts’ that homeowners must pleaded are those upon which liability depends i.e., `the facts constituting the causes of action’ homeowners will alleged in their complaint.

When homeowners finds themselves in a situation where they have already made such arguments, they need to do a damage control by arguing in their subsequent pleadings that they could amend to allege specifically the action they took or did not take because of their reliance on the alleged forgeries.

Wrongful Foreclosure by a Nonholder of the Deed of Trust The theory that a foreclosure was wrongful because it was initiated by a nonholder of the deed of trust has also been phrased as (1) the foreclosing party lacking standing to foreclose or (2) the chain of title relied upon by the foreclosing party containing breaks or defects. (See Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 764; Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th 1366 [Deutsche Bank not entitled to summary judgment on wrongful foreclosure claim because it failed to show a chain of owner ship that would establish it was the true beneficiary under the deed of trust ]; Guerroro v. Greenpoint Mortgage Funding, Inc. (9th Cir. 2010) 403 Fed.Appx. 154, 156 [rejecting a wrongful foreclosure claim because, among other things, plaintiffs “have not pleaded any facts to rebut the unbroken chain of title”].)

In Barrionuevo v. Chase Bank, N.A. (N.D.Cal. 2012) 885 F.Supp.2d 964, the district court stated: “Several courts have recognized the existence of a valid cause of action for wrongful foreclosure where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.” (Id. at p. 973.)

Homeowners should be careful here when pleading their cases because numerous courts though had agreed with this statement of law, but sometimes believe that properly alleging a cause of action under this theory requires more than simply stating that the defendant who invoked the power of sale was not the true beneficiary under the deed of trust.

When that happens the courts usually concluded that [plaintiff failed to plead specific facts demonstrating the transfer of the note and deed of trust were invalid].)

Therefore, a plaintiff Homeowner asserting this theory must allege facts that show the defendant who invoked the power of sale was not the true beneficiary. (See Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1506

One basis for claiming that a foreclosing party did not hold the deed of trust is that the assignment relied upon by that party was ineffective. Courts have held that when a borrower asserts an assignment was ineffective, a question often arises about the borrower’s standing to challenge the assignment of the loan (note and deed of trust) — an assignment to which the borrower is not a party. (E.g., Conlin v. Mortgage Electronic Registration Systems, Inc. (6th Cir. 2013) 714 F.3d 355, 361 [third party may only challenge an assignment if that challenge would render the assignment absolutely invalid or ineffective, or void];  Culhane v. Aurora Loan Services of Nebraska (1st Cir. 2013) 708 F.3d 282, 291 [under Massachusetts law, mortgagor has standing to challenge a mortgage assignment as invalid, ineffective or void]; Gilbert v. Chase Home Finance, LLC (E.D. Cal., May 28, 2013, No. 1:13 – CV – 265 AWI SKO) 2013 WL 2318890.)

California‟s version of the principle concerning a third party‟s ability to challenge an assignment has been stated in a secondary authority as follows:

“Where an assignment is merely voidable at the election of the assignor,
third parties, and particularly the obligor, cannot … successfully challenge
the validity or effectiveness of the transfer.” (7 Cal.Jur.3d (2012) Assignments, § 43.)

This statement implies that a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment. (See Reinagel v. Deutsche Bank Nation al Trust Co. (5th Cir. 2013) ___ F.3d ___ [2013 WL 3480207 at p.*3] [following majority rule that an obligor may raise any ground that renders the assignment void, rather than merely voidable].)

Therefore Homeowners should craft the allegations to present a theory under which the challenged assignments are void, not merely voidable, because numerous courts have rejected the view that a borrower’s challenge to an assignment must fail once it is determined that the borrower was not a party to, or third party beneficiary of, the assignment agreement. The courts held that cases adopting that position “paint with too broad a brush.” See (Culhane v. Aurora Loan Services of Nebraska, supra, 708 F.3d at p. 290.) The deciding court held that instead, courts should proceed to the question whether the assignment was void.

On the Tender Rule, for wrongful foreclosure, many foreclosure mills had plead that cancellation of instruments and quiet title are defective because homeowners failed to allege that the made a valid and viable tender of payment of the indebtedness. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117 [“valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust”].)

Tender is not required where the foreclosure sale is void, rather than voidable,

such as when a plaintiff proves that the entity lacked the authority to foreclose on the property. (Lester v. J.P. Morgan Chase Bank, supra, ___ F.Supp.2d____, [2013 WL 633333, p. *8]; 4 Miller & Starr, Cal. Real Estate (3d ed. 2003) Deeds of Trust, § 10:212, p. 686.)

See generally, Annotation, Recognition of Action for Damages for Wrongful Foreclosure—Types of Action (2013) 82 A.L.R.6th 43 (claims that a foreclosure is “wrongful” can be tort – based, statute – based, and contract – based) Claims of misrepresentation or fraud related to robo-signing of foreclosure documents is addressed in Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second, supra, at pages 147 to 149.

In ruling on Foreclosure Mills request for judicial notice of there worthless fraudulent foreclosure documents, the trial courts has stated that it could only take judicial notice that certain documents in the request, including the assignment of deed of trust, had been recorded, but it could not take judicial notice of factual matters stated in those documents. This ruling is correct and unchallenged on appeal.

So the courts may take judicial notice of the existence and recordation of a document with the county such as assignment, but the court “do not take notice of the truth of matters stated therein.” (Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th at p. 1375.) In most cases, the assignment of deed of trust does not establish that foreclosure mill was, in fact, the holder of the beneficial interest in the said deed of trust that the assignment states was transferred to it. The courts has further held that similarly, it does not establish that foreclosing bank in fact became the owner or holder of that beneficial interest. So because the document does not establish these facts for purposes of this demurrer, (Motion to Dismiss – Objection), it does not cure breaks in the chains of ownership that homeowners may allege. When plead correctly, these tips usually help homeowners in the litigation to survive the motion to dismiss brought by the Foreclosure Mills who cannot explain their documents and therefore allow homeowners wrongful foreclosure claims to advance from the pleading stage to discovery without being dismissed outright.

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, and need a complete package  that will help you challenge these fraudsters and save your home from foreclosure visit: http://www.fightforeclosure.net

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