{"id":6006,"date":"2024-03-20T19:38:39","date_gmt":"2024-03-20T19:38:39","guid":{"rendered":"https:\/\/www.californiamortgageassociation.org\/?p=6006"},"modified":"2024-03-20T20:34:25","modified_gmt":"2024-03-20T20:34:25","slug":"when-your-foreclosure-has-a-lis-pendens","status":"publish","type":"post","link":"https:\/\/www.californiamortgageassociation.org\/2024\/03\/20\/when-your-foreclosure-has-a-lis-pendens\/","title":{"rendered":"When Your Foreclosure Has a Lis Pendens"},"content":{"rendered":"[et_pb_section admin_label=”section”]\n\t\t\t[et_pb_row admin_label=”row”]\n\t\t\t\t[et_pb_column type=”4_4″][et_pb_text admin_label=”Text”]\n

By Arnold L. Graff, Esq. and T. Robert Finlay, Esq.
Wright, Finlay & Zak, LLP<\/strong><\/p>\n\n\n\n

For years now, California, as well as many of its cities and counties have waged an outright war on a property owners right to evict tenants. Now, the courts have joined the siege. In Homeward Opportunities Fund I Trust 2019-2 v. Taptelis, the California Court of Appeals recently held that the purchaser at a foreclosure sale that is subject to a recorded lis pendens, must remove the cloud on title before starting an eviction. The Court\u2019s ruling is a complete deviation from the law that has been in effect for decades.<\/p>\n\n\n\n

Facts:<\/strong>
Ilias Taptelis (the \u201cBorrower\u201d) borrowed $1.24 million to purchase residential property in Santa Clara County. The loan was secured by a deed of trust. The Borrower defaulted on the loan, and the lender initiated foreclosure. Before the trustee\u2019s sale occurred, the Borrower filed a civil action challenging the impending foreclosure. In conjunction with the lawsuit, the borrower recorded a lis pendens just two days before the trustee\u2019s sale. The trustee\u2019s sale went forward, with the foreclosing lender (\u201cHomeward\u201d) buying the property with a credit bid. A few months after the sale, Homeward served a notice to quit on the Borrower. After the Borrower failed to vacate the Property, Homeward filed an unlawful detainer action seeking to take possession of the Property (the \u201cUD Action\u201d).<\/p>\n\n\n\n

Procedural Posture:<\/strong>
At a bench trial in the UD Action, Homeward introduced several recorded documents \u2014 including the Deed of Trust, Assignment, Notice of Default, Notice of Trustee\u2019s Sale, and Trustee\u2019s Deed \u2014 to establish that it had \u201cperfected title\u201d to the property before initiating the UD Action in compliance with Code of Civil Procedure section 1161a(b)(3). However, the trial court excluded from evidence Borrower\u2019s efforts to introduce his recorded lis pendens. The trial court ruled in favor of Homeward, and the Borrower appealed. On Appeal, the Court of Appeal reversed, holding that the recorded lis pendens was a cloud on title that, unless first expunged, barred the unlawful detainer claim.<\/p>\n\n\n\n

Reasoning\/Logic:<\/strong>
Although recording a trustee\u2019s deed is typically sufficient to raise a conclusive presumption of tile under the sale as to a bona fide purchaser for value without notice, the Appellate Court found that Homeward purchased the Property with notice of, and subject to, the Borrower\u2019s recorded lis pendens. The Appellate Court first cited the general rule that a \u201clis pendens clouds title until the litigation is resolved or the lis pendens is expunged[.]\u201d Turning to the unlawful detainer statute at CCP Section 1161a, the court stated that \u201ca plaintiff seeking a judgment of unlawful detainer must establish that the title under the sale has been duly perfected. \u2026 Title is duly perfected when all steps have been taken to make it perfect, i.e., to convey to the purchaser that which has purchased, valid and good beyond all reasonable doubt \u2026 which includes good record title\u2026.\u201d The court based it analysis in part on the case of Dr. Leevil, LLC v. Westlake Health Care Center, (2018) 6 Cal.5th 474, which had held that the new owner following a foreclosure sale must perfect title under that sale before seeking to evict the trustor\/borrower.<\/p>\n\n\n\n

A lis pendens raises an issue of title and, thus, the Appellate Court found that it clouded the title acquired by the purchaser at the foreclosure sale that would preclude the purchaser from perfecting title. Since a cloud on title cannot be litigated in an unlawful detainer action, as an impediment to the perfection of title, that cloud must be cleared before the purchaser may serve a notice to quit and commence an unlawful detainer proceeding. Here, the lis pendens had not been expunged nor had the wrongful foreclosure suit of which it gave notice been resolved prior to the attempted eviction. As a result, the Appeal Court determined that Homeward could not prove that it had duly perfected title so as to enable it to seek to evict the Borrower.<\/p>\n\n\n\n

There is a glimmer of hope, though, as the Court has granted a petition for rehearing, which has now been fully briefed and is under submission. Perhaps this cloud will have a silver lining after all.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Take Away:
For decades, purchases at foreclosure sales have served their Notice to Quit after recording the Trustees Deed Upon Sale. Unfortunately, that is no longer allowed if the borrower has properly recorded a lis pendens prior to the foreclosure sale. Instead, the foreclosure purchaser must remove (expunge) the lis pendens before it can initiate the eviction process. Of course, that process could take months, if not years, depending on the merits of the prior borrower\u2019s claims and the particular court.<\/p>\n\n\n\n

Meanwhile, the prior owner can continue living in the property payment free or, even worse, collecting rents while the foreclosure purchaser is trying to remove the lis pendens.<\/p>\n\n\n\n

It will not take long for borrower attorneys to try to take advantage of this misguided ruling and to start routinely recording lis pendens prior to foreclosure sales, just to try to buy their clients more time in the property.<\/p>\n\n\n\n

<\/p>\n\n\n\n

\n\n\n\n

<\/p>\n\n\n\n

Disclaimer: The above information is intended for information purposes alone and is not intended as legal advice. Please consult with counsel before taking any steps in reliance on any of the information contained herein.<\/p>\n\n\n\n

\n
\n
\"\"<\/figure>\n\n\n\n

Arnold Graff, Esq.
<\/strong>Managing Bankruptcy Attorney
Wright Finlay & Zak<\/p>\n\n\n\n

agraff@wrightlegal.net<\/a><\/p>\n\n\n\n

949-477-5050<\/p>\n\n\n\n

Arnold L. Graff joined Wright, Finlay & Zak in 2019 as the firm’s Managing Attorney of Bankruptcy, Unlawful Detainer & Surplus Funds.  He has over a decade of experience representing financial institutions and related entities in federal and state court.  Mr. Graff currently focuses on bankruptcy, real property, unlawful detainer, creditor collections, and foreclosure-related litigation.  He also specializes in all areas of bankruptcy law, including Chapter 11, 13 and 7 matters, as well as adversary litigation.<\/p>\n\n\n\n

Mr. Graff is admitted to the State Bars of California, Nevada, Utah and Wisconsin, and is also admitted to practice before all state and federal courts in California, Nevada and Utah.  He is also proficient in Spanish.<\/p>\n<\/div>\n\n\n\n

\n
\"\"<\/figure>\n\n\n\n

T. Robert Finlay, Esq.
<\/strong>Founding Partner
Wright, Finlay & Zak<\/p>\n\n\n\n

rfinlay@wrightlegal.net<\/a><\/p>\n\n\n\n

949-477-5056<\/p>\n\n\n\n

T. Robert Finlay is one of the three founding partners of Wright, Finlay & Zak.  Since 1994, Mr. Finlay has focused his legal career on consumer credit, business and real estate litigation and has extensive experience with trials, mediations, arbitrations and appeals.  Mr. Finlay is at the forefront of the mortgage banking industry, handling all aspects of the ever-changing default servicing and mortgage banking litigation arena, including compliance issues for servicers, lenders, investors, title companies and foreclosure trustees.  Mr. Finlay successfully guides clients through the complexities of litigation while being extremely mindful of their core values and business models.  He is a regular speaker (at industry events and for clients) on a variety of loan servicing and mortgage banking issues, including key legislative and legal updates, California and Nevada Homeowner Bill of Rights (HOBR), Nevada HOA lien problems and other relevant litigation and compliance issues.<\/p>\n\n\n\n

Mr. Finlay is an active member of the Mortgage Bankers Association (MBA), California Mortgage Bankers Association (CMBA), United Trustees Association (UTA), American Legal and Financial Network (ALFN), and Orange County Bar Association.  From 2008-2014, Mr. Finlay served as a Committee Member and Board Member of the United Trustees Association, being elected as its President in 2011 and 2012.  He currently serves on the UTA Board of Directors.  Since 2013, he has been Chair of the UTA\u2019s Legislative Committee, working closely with lobbyists in California, Nevada, Washington and Oregon on key industry issues.  Mr. Finlay has also been on the Legislative Committee for the CMBA since 2013.  Mr. Finlay is a regular contributor to several industry periodicals and has also authored pertinent Amicus Briefs on key issues impacting the mortgage and finance industry.  His key published opinions include Mabry v. Superior Court<\/em> (2010) 185 Cal.App.4th 208 (Amicus counsel) and Bostanian v. Liberty Saving Bank<\/em> (1997) 52 Cal.App.4th.<\/p>\n<\/div>\n<\/div>\n[\/et_pb_text][\/et_pb_column]\n\t\t\t[\/et_pb_row]\n\t\t[\/et_pb_section]","protected":false},"excerpt":{"rendered":"

By Arnold L. Graff, Esq. and T. Robert Finlay, Esq. Wright, Finlay & Zak, LLP For years now, California, as well as many of its cities and counties have waged […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"\n

By Arnold L. Graff, Esq. and T. Robert Finlay, Esq.
Wright, Finlay & Zak, LLP<\/strong><\/p>\n\n\n\n

For years now, California, as well as many of its cities and counties have waged an outright war on a property owners right to evict tenants. Now, the courts have joined the siege. In Homeward Opportunities Fund I Trust 2019-2 v. Taptelis, the California Court of Appeals recently held that the purchaser at a foreclosure sale that is subject to a recorded lis pendens, must remove the cloud on title before starting an eviction. The Court\u2019s ruling is a complete deviation from the law that has been in effect for decades.<\/p>\n\n\n\n

Facts:<\/strong>
Ilias Taptelis (the \u201cBorrower\u201d) borrowed $1.24 million to purchase residential property in Santa Clara County. The loan was secured by a deed of trust. The Borrower defaulted on the loan, and the lender initiated foreclosure. Before the trustee\u2019s sale occurred, the Borrower filed a civil action challenging the impending foreclosure. In conjunction with the lawsuit, the borrower recorded a lis pendens just two days before the trustee\u2019s sale. The trustee\u2019s sale went forward, with the foreclosing lender (\u201cHomeward\u201d) buying the property with a credit bid. A few months after the sale, Homeward served a notice to quit on the Borrower. After the Borrower failed to vacate the Property, Homeward filed an unlawful detainer action seeking to take possession of the Property (the \u201cUD Action\u201d).<\/p>\n\n\n\n

Procedural Posture:<\/strong>
At a bench trial in the UD Action, Homeward introduced several recorded documents \u2014 including the Deed of Trust, Assignment, Notice of Default, Notice of Trustee\u2019s Sale, and Trustee\u2019s Deed \u2014 to establish that it had \u201cperfected title\u201d to the property before initiating the UD Action in compliance with Code of Civil Procedure section 1161a(b)(3). However, the trial court excluded from evidence Borrower\u2019s efforts to introduce his recorded lis pendens. The trial court ruled in favor of Homeward, and the Borrower appealed. On Appeal, the Court of Appeal reversed, holding that the recorded lis pendens was a cloud on title that, unless first expunged, barred the unlawful detainer claim.<\/p>\n\n\n\n

Reasoning\/Logic:<\/strong>
Although recording a trustee\u2019s deed is typically sufficient to raise a conclusive presumption of tile under the sale as to a bona fide purchaser for value without notice, the Appellate Court found that Homeward purchased the Property with notice of, and subject to, the Borrower\u2019s recorded lis pendens. The Appellate Court first cited the general rule that a \u201clis pendens clouds title until the litigation is resolved or the lis pendens is expunged[.]\u201d Turning to the unlawful detainer statute at CCP Section 1161a, the court stated that \u201ca plaintiff seeking a judgment of unlawful detainer must establish that the title under the sale has been duly perfected. \u2026 Title is duly perfected when all steps have been taken to make it perfect, i.e., to convey to the purchaser that which has purchased, valid and good beyond all reasonable doubt \u2026 which includes good record title\u2026.\u201d The court based it analysis in part on the case of Dr. Leevil, LLC v. Westlake Health Care Center, (2018) 6 Cal.5th 474, which had held that the new owner following a foreclosure sale must perfect title under that sale before seeking to evict the trustor\/borrower.<\/p>\n\n\n\n

A lis pendens raises an issue of title and, thus, the Appellate Court found that it clouded the title acquired by the purchaser at the foreclosure sale that would preclude the purchaser from perfecting title. Since a cloud on title cannot be litigated in an unlawful detainer action, as an impediment to the perfection of title, that cloud must be cleared before the purchaser may serve a notice to quit and commence an unlawful detainer proceeding. Here, the lis pendens had not been expunged nor had the wrongful foreclosure suit of which it gave notice been resolved prior to the attempted eviction. As a result, the Appeal Court determined that Homeward could not prove that it had duly perfected title so as to enable it to seek to evict the Borrower.<\/p>\n\n\n\n

There is a glimmer of hope, though, as the Court has granted a petition for rehearing, which has now been fully briefed and is under submission. Perhaps this cloud will have a silver lining after all.<\/p>\n\n\n\n

<\/p>\n\n\n\n

Take Away:
For decades, purchases at foreclosure sales have served their Notice to Quit after recording the Trustees Deed Upon Sale. Unfortunately, that is no longer allowed if the borrower has properly recorded a lis pendens prior to the foreclosure sale. Instead, the foreclosure purchaser must remove (expunge) the lis pendens before it can initiate the eviction process. Of course, that process could take months, if not years, depending on the merits of the prior borrower\u2019s claims and the particular court.<\/p>\n\n\n\n

Meanwhile, the prior owner can continue living in the property payment free or, even worse, collecting rents while the foreclosure purchaser is trying to remove the lis pendens.<\/p>\n\n\n\n

It will not take long for borrower attorneys to try to take advantage of this misguided ruling and to start routinely recording lis pendens prior to foreclosure sales, just to try to buy their clients more time in the property.<\/p>\n\n\n\n

<\/p>\n\n\n\n

\n\n\n\n

<\/p>\n\n\n\n

Disclaimer: The above information is intended for information purposes alone and is not intended as legal advice. Please consult with counsel before taking any steps in reliance on any of the information contained herein.<\/p>\n\n\n\n

\n
\n
\"\"<\/figure>\n\n\n\n

Arnold Graff, Esq.
<\/strong>Managing Bankruptcy Attorney
Wright Finlay & Zak<\/p>\n\n\n\n

agraff@wrightlegal.net<\/a><\/p>\n\n\n\n

949-477-5050<\/p>\n\n\n\n

Arnold L. Graff joined Wright, Finlay & Zak in 2019 as the firm's Managing Attorney of Bankruptcy, Unlawful Detainer & Surplus Funds.  He has over a decade of experience representing financial institutions and related entities in federal and state court.  Mr. Graff currently focuses on bankruptcy, real property, unlawful detainer, creditor collections, and foreclosure-related litigation.  He also specializes in all areas of bankruptcy law, including Chapter 11, 13 and 7 matters, as well as adversary litigation.<\/p>\n\n\n\n

Mr. Graff is admitted to the State Bars of California, Nevada, Utah and Wisconsin, and is also admitted to practice before all state and federal courts in California, Nevada and Utah.  He is also proficient in Spanish.<\/p>\n<\/div>\n\n\n\n

\n
\"\"<\/figure>\n\n\n\n

T. Robert Finlay, Esq.
<\/strong>Founding Partner
Wright, Finlay & Zak<\/p>\n\n\n\n

rfinlay@wrightlegal.net<\/a><\/p>\n\n\n\n

949-477-5056<\/p>\n\n\n\n

T. Robert Finlay is one of the three founding partners of Wright, Finlay & Zak.  Since 1994, Mr. Finlay has focused his legal career on consumer credit, business and real estate litigation and has extensive experience with trials, mediations, arbitrations and appeals.  Mr. Finlay is at the forefront of the mortgage banking industry, handling all aspects of the ever-changing default servicing and mortgage banking litigation arena, including compliance issues for servicers, lenders, investors, title companies and foreclosure trustees.  Mr. Finlay successfully guides clients through the complexities of litigation while being extremely mindful of their core values and business models.  He is a regular speaker (at industry events and for clients) on a variety of loan servicing and mortgage banking issues, including key legislative and legal updates, California and Nevada Homeowner Bill of Rights (HOBR), Nevada HOA lien problems and other relevant litigation and compliance issues.<\/p>\n\n\n\n

Mr. Finlay is an active member of the Mortgage Bankers Association (MBA), California Mortgage Bankers Association (CMBA), United Trustees Association (UTA), American Legal and Financial Network (ALFN), and Orange County Bar Association.  From 2008-2014, Mr. Finlay served as a Committee Member and Board Member of the United Trustees Association, being elected as its President in 2011 and 2012.  He currently serves on the UTA Board of Directors.  Since 2013, he has been Chair of the UTA\u2019s Legislative Committee, working closely with lobbyists in California, Nevada, Washington and Oregon on key industry issues.  Mr. Finlay has also been on the Legislative Committee for the CMBA since 2013.  Mr. Finlay is a regular contributor to several industry periodicals and has also authored pertinent Amicus Briefs on key issues impacting the mortgage and finance industry.  His key published opinions include Mabry v. Superior Court<\/em> (2010) 185 Cal.App.4th 208 (Amicus counsel) and Bostanian v. Liberty Saving Bank<\/em> (1997) 52 Cal.App.4th.<\/p>\n<\/div>\n<\/div>\n","_et_gb_content_width":"","_price":"","_stock":"","_tribe_ticket_header":"","_tribe_default_ticket_provider":"","_tribe_ticket_capacity":"0","_ticket_start_date":"","_ticket_end_date":"","_tribe_ticket_show_description":"","_tribe_ticket_show_not_going":false,"_tribe_ticket_use_global_stock":"","_tribe_ticket_global_stock_level":"","_global_stock_mode":"","_global_stock_cap":"","_tribe_rsvp_for_event":"","_tribe_ticket_going_count":"","_tribe_ticket_not_going_count":"","_tribe_tickets_list":"[]","_tribe_ticket_has_attendee_info_fields":false,"footnotes":""},"categories":[17],"tags":[],"_links":{"self":[{"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/posts\/6006"}],"collection":[{"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/comments?post=6006"}],"version-history":[{"count":7,"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/posts\/6006\/revisions"}],"predecessor-version":[{"id":6025,"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/posts\/6006\/revisions\/6025"}],"wp:attachment":[{"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/media?parent=6006"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/categories?post=6006"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.californiamortgageassociation.org\/wp-json\/wp\/v2\/tags?post=6006"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}