Building on precedent established in Pfeifer v. Countrywide Home Loans (2012) 211 Cal.App.4th 1250, a California appellate court has ruled that a borrower can file suit to set aside a completed trustee’s sale of a foreclosed property without paying the amount owed if the lender has failed to meet the National Housing Act requirement for FHA loans that the lender conduct a face-to-face meeting with the borrower.
In 2011, Wells Fargo foreclosed on the residential mortgage loan of plaintiffs Leroy Fonteno and Jeanette Childs and purchased their home at a foreclosure trustee’s sale conducted by defendant First American Trustee Servicing Solutions LLC. Plaintiffs filed suit, alleging that Wells Fargo and First American violated a provision in their deed of trust requiring a pre-foreclosure meeting per National Housing Act (NHA) regulations and the Federal Debt Collection Practices Act (FDCPA).
In July 2012, a trial court sustained demurrers on an amended complaint and denied a preliminary injunction.
In its August 18, 2014 decision in Fonteno v. Wells Fargo Bank, N.A., 2014 WL 4058867, the appeals court reversed, finding that the plaintiffs did have a viable claim for cancellation of the foreclosure sale based on the allegation that Wells Fargo was in violation of NHA requirements in the deed of trust. The court noted that since compliance was precedent to Wells Fargo’s authority to foreclose and if the sale was conducted without such authority, then the sale may be found either void or voidable by a court sitting in equity and that plaintiffs were not required to render the delinquent amount owed to make a claim. The court did not decide whether the sale in Fonteno was void rather than voidable.
On the plaintiff’s claims under the FDCPA, the court found that a foreclosure trustee is not a debt collector and is thus not subject to FDCPA compliance.
The appeals court affirmed the remainder of the trial court’s orders sustaining defendants’ demurrers, vacated the trial court’s denial of the plaintiff’s request for a preliminary injunction and remanded the matter to the trial court.
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