Failure to Provide Notice of Redemption Rights May Void HOA’s Nonjudicial Foreclosure

  In Multani v. Witkin & Neal [See, also Multani v. Witkin & Neal Order Modifying Opinion (No Change in Judgment)] the Court of Appeal was presented with a question of first impression. Does a homeowner’s association’s failure to comply with the requirements of Code of Civil Procedure section 729.050, i.e., the associations failure to notify the owner of its redemption rights, sufficiently prejudiced an owner such that the owner can state a cause of action to set aside the foreclosure sale?

  In holding that the trial court had improperly granted defendant’s motion for summary judgment, the court held that defendant’s failure to introduce any evidence that they notified plaintiffs of their redemption rights, coupled with their inability to make a prima facie showing that plaintiffs suffered no harm from this procedural defect, required the court to overrule defendant’s summary judgment motion.

  Generally, to set aside a foreclosure a plaintiff, must establish three elements: 1) the trustee caused an illegal, fraudulent, or willfully oppressive sale of real property; 2) the party attacking the sale was prejudiced; and, 3) in cases where the trustor challenges the sale, the trustor tendered the amount of the secured indebtedness, or was excused.

  The court first determined that the notice requirements of Code of Civil Procedure section 729.050, providing notice to the debtor of its redemption rights, was a statutory requirement of a valid nonjudicial trustee sale. Therefore, a failure to provide any notice could not be excused as a “slight deviation from statutory notice requirements.” Thus, the trustee’s failure to provide notice satisfied plaintiff’s first necessary element of proof, i.e., the trustee caused an illegal sale.

iStock_000016650538XSmall_edited-1  With respect to the second requirement, the court determined that defendant failed to meet their burden of producing evidence showing that one or more elements of plaintiff’s cause of action could not be established because they offered no evidence that plaintiff did not suffer prejudice as a result of the trustee’s failure to follow statutory post-sale redemption notice requirements.

  The third requirement, tender, is one of the most difficult for plaintiffs to prove in any action to set aside a foreclosure sale. In most cases, it is only when tender is legally excused can a plaintiff trustor prevail.

  Legal excuses, where tender is not required, include: 1) if the debtor’s action attacks the validity of the underlying debt; 2) if the entity who seeks to set aside the trustee’s sale has a counterclaim or setoff against the beneficiary, and the tender and counterclaim offset one another or if the offset is equal or greater than the amount due; 3) where it would be inequitable; 4) where the trustor is not required to rely on equity to attack the trustee’s deed because it is void on its face.

  In holding that “a debtor is properly excused from complying with the tender requirement where the nonjudicial foreclosure is subject to a statutory right of redemption and the trustee has failed to provide the notice required under section 729.050” the court reasoned that applying the tender requirement would be inconsistent with the statutory scheme and inequitable because it would require owners to offer to forego the redemption process in order to challenge it.

  For information regarding an owner’s other rights with respect to nonjudicial foreclosure under Davis-Stirling see my post entitled: “Unpaid HOA Assessments: Your Rights Under Davis-Stirling.”

  I consult with clients, including owners and Boards of Directors of common interest developments, and accept cases involving assessments, liens, and foreclosures under the Davis Stirling Common Interest Development Act. For other types of cases I accept, please scroll my Home page and consult the My Practice page. If you are seeking a consult or representation, please give me a call at 818.971.9409. – Michael Daymude 

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