THE SCENE: Suppose a Buyer and Seller agree on a purchase price for Seller’s home (for this hypothetical assume $850,000.00), they sign the customary California of Association of Realtors (“CAR”) form Residential Purchase Agreement and Joint Escrow Instructions (“Agreement”) and open escrow. Buyer deposits $25,000.00 into escrow. Buyer’s lender approves Buyer for a purchase money loan. The typical written disclosures are made by Seller. This is Buyer’s first home purchase, or at least he is not sophisticated in real estate purchases.
After loan approval and after the disclosures, Buyer removes all contingencies. Seller incurs thousands of dollars in obtaining termite clearance and in removing Seller’s junk from her yard, in contemplation of the sale. Thereafter, however, Buyer’s lender does an about face and disapproves the loan. Buyer also discovers several conditions regarding the house that Buyer believes were misrepresented (e.g., an open insurance claim, fire damage, mold, water damage and unpermitted work).
On February 8, 2012, the U.S. Department of Justice, along with the States’ Attorney’s General announced that they had entered into a $26 billion settlement with the U.S.’s five biggest banks, including Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial.
After hearing this announcement, and in the last few months, many homeowners are probably wondering why they haven’t seen any of this money.
The good news is that on May 8, 2012, Bank of America announced that it has began reaching out to customers who may be eligible for forgiveness of a portion of the principal balance of their mortgage under the terms of the February 8 settlement.
It has been a popular tactic across the country, with all the foreclosures of trust deeds, which have been assigned multiple times, for borrowers and/or junior lien holders to try and thwart a non-judicial foreclosure sale by claiming that “no foreclosure of a deed of trust is valid unless the beneficiary is in possession of the original underlying promissory note.” Any assignees of the original note and deed of trust do not possess the original note. Without such possession, some argue, the deed of trust is allegedly “severed” from the promissory note and consequently is of no effect. Some have also tried to rely on the Commercial Code claiming that because a promissory note is a negotiable instrument, it can only be assigned with a valid endorsement and physical delivery to the assignee; again, the foreclosing party allegedly needs the original note.