The Wrong Remedy at the Wrong Time, Part 1

The Wrong Remedy at the Wrong Time, Part 1

By Daniel Edstrom
DTC Systems, Inc.

New Note added on 1/22/2012 thanks to Simonee.  California Probate Code does not seem to apply based on this California Supreme Court decision: Monterey S.P. Partnership v. W. L. Bangham, Inc. (1989) 49 Cal.3d 454 , 261 Cal.Rptr. 587; 777 P.2d 623 (download here: http://dtc-systems.net/wp-content/uploads/2012/01/Monterey_SP_Partnership_vs_WL_Bangham.pdf)

Monterey S.P. Partnership v. W. L. Bangham, Inc. (1989) 49 Cal.3d 454 , 261 Cal.Rptr. 587; 777 P.2d 623

Here is a quick overview of what happens in a non-judicial foreclosure.  If you are in a judicial state, this post does not apply directly to your case.  But if you understand what happens in a non-judicial foreclosure, you may get insight into what might apply to your case.

I am not indicating that any of these documents are true or accurate, just that this is what typically happens.

Closing the Transaction

The homeowner executes a note and security instrument (i.e. Deed of Trust).  The parties to the trust created by the Deed of Trust are the trustor (homeowner), trustee (usually a title company) and the beneficiary (either MERS or the named lender).    Everyone seems to assume that the trust was constituted (created), that it is valid and continuing.  This is where the trouble begins (not really, but for this article we will assume it begins here and not before).

Notice of Default

Supposedly the Notice of Default is recorded and sent to the homeowner by the agent for the beneficiary.  Who is the beneficiary?  Looking at my notice of default the only beneficiary mentioned is MERS.  However, other documents sent usually point to one or more other parties who “might” be a beneficiary.

Substitution of Trustee

Typically the servicer substitutes in a new trustee, but numerous other parties have done this also (MERS, attorneys in fact for the originator, etc).  I submit that the substitution of trustee can only be done by a real beneficiary who is named on the Deed of Trust.  If an assignment of Deed of Trust is executed, does it change the beneficiary of the Deed of Trust?  I don’t know the answer to that because in my case MERS is the beneficiary and they are not the lender.  So if the “lender” changed, does this change the beneficiary?  Case law anyone?

Notice of Sale

A notice of sale is recorded and sent to the homeowner by the substituted trustee.

Sale

The sale takes place whereby usually the substituted trustee acquires the property and/or the trustee of a securitized trust acquires the property.

Unlawful Detainer (UD)

A lawsuit is instituted against the homeowner to eject them from the premises.

Remedies

Homeowners have stopped at nothing to circumvent the above.  This includes recording documents that change the trustee and/or the beneficiary and/or otherwise change or cancel the trust created by the Deed of Trust. 

The only way to stop a sale is to get a judge to issue a TRO (temporary restraining order) or to declare bankruptcy whereby an automatic stay is issued which prevents anyone from lawfully foreclosing (at least temporarily).

Most attempts to stop the sale are through state or federal lawsuits where the homeowner attempts to get a restraining order.  The homeowner then attempts to explain to the judge why the above documents are invalid, false, fraudulent, etc. (Notice of Default, Substitution of Trustee, Assignment of Deed of Trust and Notice of Sale).  So far this has resulted in close to zero victories for homeowners (I am sure there are a couple of victories – such as Paul Nguyen’s victory down in Souther California).

Real victories are getting closer in numerous bankruptcy cases (James Macklin, Brian Davies, and others).

Convincing the judge that the foreclosure documents are invalid is an uphill battle.  The documents are presumed to be valid and the parties are presumed to be the correct parties.  Homeowners can present all of the evidence that they want, which doesn’t seem to convince the judges, because the parties have the presumption of being the correct parties. 

If you want to attack the foreclosure documents, you have to attack the parties standing as being correct.  As far as I have seen NOBODY is doing this the correct way – as the law is intended.  How do you go about determining who the beneficiary, the trustee, the substituted trustee is?  Beyond this I have previously stated that the trust is not constituted unless the settlor (the homeowner) gives up control of the assets and the beneficiaries have the power to enforce the trust.  If you are not attacking the beneficiaries power to enforce the trust, how will you stop the beneficiary from declaring a default and how will you stop the substituted trustee from foreclosing?   The proper remedy is not available in bankruptcy court, Federal Court or in the state court lawsuit and TRO to stop the sale.  It is not even available in an unlawful detainer proceeding.

Let me say this again: the lawsuit and TRO or a bankruptcy are necessary to stop the sale.  But the remedy available to the homeowner to determine if the beneficiary is valid (or other questions of trust construction) is not available in any of these specific proceedings.

The secret lies with Deutsche Bank and what they did in California Superior Court.

In the next article we will arm you for a battle that should be much easier to fight.