FBR: Is the Aceves case a game changer in California?
A California appellate court handed servicers a win when it ruled that a notice of default that contained clerical errors is still legally valid, as long as the mortgagee was not harmed, FBR Capital Markets said in a research note. The note refers to the Aceves v. U.S. Bank appellate ruling handed down in recent days. “[P]rocedural errors in filing notices of default in California may not be as problematic as many have feared," FBR said in a note penned by analysts Paul Miller and Edward Mills. “This is a significant ruling for California as many of the cases contesting foreclosure question the validity of the notice of default.” California is a nonjudicial state in which foreclosures are processed without court intervention. When a homeowner defaults on a mortgage, a notice of default is sent to him or her. If the mortgagor does not reverse the default, a notice of sale goes out, and the home can then be sold after a required waiting period. FBR notes that there have been lawsuits alleging that these notices of default were not properly prepared and therefore foreclosures were improperly completed. California notices of default did fall 17.5% in the fourth quarter of 2010 as lenders reviewed procedures, according to DataQuick. “While … we believe this is certainly a positive development for servicers, this is far from waving the ‘all clear’ signal as this is only one state and is a ruling out of the appellate court and not the state supreme court,” the research note said. “Should this precedent stand or expand to other states, we believe it would go a long way in alleviating the concerns relating to procedural issues on homes already foreclosed upon.” The case involved homeowner Claudia Jacqueline Aceves who filed a lawsuit against U.S. Bank alleging that the bank committed promissory fraud and questioned whether the notice of default was valid. According to court documents, the notice had the incorrect beneficiary listed but did contain the correct contact information in the event that Aceves wanted to make a payment to stop foreclosure. The court determined that she was not harmed by the error in the notice as she could have reversed the foreclosure. While the ruling is, on one hand, a win for servicers, the court also ruled that Aceves had cause to sue U.S. Bank for fraud. She alleged in her complaint that the servicer of her mortgage, American Home Mortgage Servicing, had agreed to negotiate a loan modification if she agreed to lift the “stay” on her bankruptcy filing. Aceves had original filed for Chapter 7 bankruptcy protection, which automatically postpones foreclosure proceedings. It was her plan to convert the case to a Chapter 13 bankruptcy, which includes provisions that allow a homeowner to make payments over a period of time to get their mortgage current. After Aceves agreed to lift the stay on the bankruptcy, American proceeded with the foreclosure and allegedly did not negotiate a modification, according to court records. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.
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