Original proceedings; petition for a writ of mandate to challenge an order of the Superior Court of Orange County, David C. Velazquez, Judge. Writ granted in part and denied in part. (Super. Ct. No. 30-2009-003090696)
The opinion of the court was delivered by: Sills, P. J.
CERTIFIED FOR PUBLICATION
Civil Code section 2923.5 requires, before a notice of default may be filed, that a lender contact the borrower in person or by phone to "assess" the borrower's financial situation and "explore" options to prevent foreclosure. Here is the exact, operative language from the statute: "(2) A mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure."*fn1 There is nothing in section 2923.5 that requires the lender to rewrite or modify the loan.
In this writ proceeding, we answer these questions about section 2923.5, also known as the Perata Mortgage Relief Act*fn2 :
(A) May section 2923.5 be enforced by a private right of action? Yes. Otherwise the statute would be a dead letter.
(B) Must a borrower tender the full amount of the mortgage indebtedness due as a prerequisite to bringing an action under section 2923.5? No. To hold otherwise would defeat the purpose of the statute.
(C) Is section 2923.5 preempted by federal law? No -- but, we must emphasize, it is not preempted because the remedy for noncompliance is a simple postponement of the foreclosure sale, nothing more.
(D) What is the extent of a private right of action under section 2923.5? To repeat: The right of action is limited to obtaining a postponement of an impending foreclosure to permit the lender to comply with section 2923.5.
(E) Must the declaration required of the lender by section 2923.5, subdivision (b) be under penalty of perjury? No. Such a requirement is not only not in the statute, but would be at odds with the way the statute is written.
(F) Does a declaration in a notice of default that tracks the language of section 2923.5, subdivision (b) comply with the statute, even though such language does not on its face delineate precisely which one of the three categories set forth in the declaration applies to the particular case at hand? Yes. There is no indication that the Legislature wanted to saddle lenders with the need to "custom draft" the statement required by the statute in notices of default.
(G) If a lender did not comply with section 2923.5 and a foreclosure sale has already been held, does that noncompliance affect the title to the foreclosed property obtained by the families or investors who may have bought the property at the foreclosure sale? No. The Legislature did nothing to affect the rule regarding foreclosure sales as final.
(H) In the present case, did the lender comply with section 2923.5? We cannot say on this record, and therefore must return the case to the trial court to determine which of the two sides is telling the truth. According to the lender, the borrowers themselves initiated a telephone conversation in which foreclosure-avoidance options were discussed, and there were many, many phone calls to the borrowers to attempt to discuss foreclosure-avoidance options. According to the borrowers, no one ever contacted them about nonforeclosure options. The trial judge, however, never reached this conflict in the facts, because he ruled strictly on legal grounds: namely (1) that section 2923.5 does not provide for a private right of action and (2) section 2923.5 is preempted by federal law. As indicated, we have concluded otherwise as to those two issues.
(I) Can section 2923.5 be enforced in a class action in this case? Not under these facts. The operation of section 2923.5 is highly fact-specific, and the details as to what might, or might not, constitute compliance can readily vary from lender to lender and borrower to borrower.
In December 2006, Terry and Michael Mabry refinanced the loan on their home in Corona from Paul Financial, borrowing about $700,000. In April 2008, Paul Financial assigned to Aurora Loan Services the right to service the loan. In this opinion, we will treat Aurora as synonymous with the lender and use the terms interchangeably.*fn3
According to the lender, in mid-July 2008 -- before the Mabrys missed their August 2008 loan payment -- the couple called Aurora on the telephone to discuss the loan with an Aurora employee. The discussion included mention of a number of options to avoid foreclosure, including loan modification, short sale, deed-in-lieu of foreclosure, and even a special forbearance. The Aurora employee sent a letter following up on the conversation. The letter explained the various options to avoid foreclosure, and asked the Mabrys to forward current financial information to Aurora so it could consider the Mabrys for these options.
According to the lender, the Mabrys missed their September 2008 payment as well, and mid-month Aurora sent them another letter describing ways to avoid foreclosure. Aurora employees called the Mabrys "many times" to discuss the situation. The Mabrys never picked up.
It is undisputed that later in September, the Mabrys filed Chapter 11 bankruptcy and Aurora did not contact the Mabrys while the bankruptcy was pending. (See 11 U.S.C. §á362 [automatic stay].) The Mabrys had their Chapter 11 case dismissed, however, in late March 2009.
According to the lender, Aurora once again began trying to call the Mabrys, calling them "numerous times," including "three times on different days." Meanwhile, in mid-April the Mabrys sent an authorization to discuss the loan with their lawyers.
According to the lender, finally, in June, the Mabrys sent two faxes to Aurora, the aggregate effect of which was to propose a short sale to the Mabrys' attorney, Moses S. Hall, for $350,000. If accepted, the short sale would have meant a loss of over $400,000 on the loan. Aurora rejected that offer, and an attorney in Hall's law office proposed a sale price of $425,000, which would have meant a loss to the lender of about $340,000.
It is undisputed that on June 18, 2009, Aurora recorded a notice of default. The notice of default used this (obviously form) language: "The Beneficiary or its designated agent declares that it has contacted the borrower, tried with due diligence to contact the borrower as required by California Civil Code section 2923.5, or the borrower has surrendered the property to the beneficiary or authorized agent, or is otherwise exempt from the requirements of section 2923.5." Aurora sent six copies of the recorded notice of default to the Mabrys' home by certified mail, and the certifications showed they were delivered.
It is also undisputed that on October 7, the Mabrys filed a complaint in Orange County Superior Court based on Aurora's alleged failure to comply with section 2923.5.
According to the borrowers, no one had ever contacted them about their foreclosure options. Michael Mabry stated the following in his declaration: "We have never been contacted by Aurora nor [sic] any of its agents in person, by telephone or by first class mail to explore options for us to avoid foreclosure as required in CC §á2923.5."
The complaint sought a temporary restraining order to prevent the foreclosure sale then scheduled just a week away, on October 14, 2009. Based on the allegation of no contact, the trial court issued a temporary restraining order, and scheduled a hearing for October 20.
But exactly one week before the October 20 hearing, the Mabrys filed an amended complaint, this one specifically adding class action allegations and seeking injunctive relief for an entire class.*fn4 This new filing came with another request for a temporary restraining order, which was also granted, with a hearing on that temporary restraining order scheduled for October 27 (albeit the order was directed at Aurora only).
The first restraining order was vacated on October 20, the second on October 27. The trial judge did not, however, resolve the conflict in the facts presented by the pleadings. Rather he concluded: (1) the action is preempted by federal law; (2) there is no private right of action under section 2923.5 -- the statute can only be enforced by members of pooling and servicing agreements; and (3) the Mabrys were required to at least tender all arrearages to enjoin any foreclosure proceedings.
The Mabrys filed a motion for reconsideration and a third request for a restraining order based on supposedly new law. The new law was a now review-granted Court of Appeal opinion which, let us merely note here, appears to have been quite off-point in regards to any issue which the trial judge had just decided. So it is not surprising that the requested restraining order was denied. The foreclosure sale was now scheduled for November 30, 2009. Six days before that, though, the Mabrys filed this writ proceeding, and two days later this court stayed all proceedings. We invited amicus curiae to give their views on the issues raised by the petition, and subsequently scheduled an order to show cause to consider those issues.
A. Private Right of Action? Yes
1. Preliminary Considerations
A private right of action may inhere within a statute, otherwise silent on the point, when such a private right of action is necessary to achieve the statute's policy objectives. (E.g., Cannon v. University of Chicago (1979) 441 U.S. 677, 683 [implying private right of action into Title IX of the Civil Rights Act because such a right was necessary to achieve the statute's policy objectives]; Basic Inc. v. Levinson (1988) 485 U.S. 224, 230-231 [implying private right of action to enforce securities statute].)
That is, the absence of an express private right of action is not necessarily preclusive of such a right. There are times when a private right of action may be implied by a statute. (E.g., Siegel v. American Savings & Loan Assn. (1989) 210 Cal.App.3d 953, 966 ["Before we reach the issue of exhaustion of administrative remedies, we must ...