Unusual Facts Lead to Unprecedented Victory for Lender

By Gary Torrell

I’d like to discuss a recent case where unusual facts and aggressive actions, led to an almost unheard-of victory for one of our lender clients.

Many homeowners miss a monthly mortgage payment or two, then make it up. But when three to five consecutive payments are missed, the lender often attempts to collect or reach a loan modification with the borrower and, if that process is unsuccessful, the lender begins to foreclose.

California and federal laws (including bankruptcy) protect homeowners and can delay a foreclosure for six months to over a year. During this time the borrower often stays in the house without making any mortgage payments. Sometimes (but rarely) the lender tries to have a state court receiver appointed to take possession during the foreclosure, but many courts won't force a borrower out until after the foreclosure. All in all, it is often a long and arduous ordeal before the lender can take possession of the property. And that’s what makes this particular case so unusual.

In this case, the owner of a luxury estate didn’t pay the loan, refused to allow the lender to inspect the property and delayed the foreclosure by filing a lawsuit and personal bankruptcy. After getting bankruptcy court relief, the lender obtained a court order forcing the homeowner to allow a property inspection, but he refused and went so far as to feign an injury to postpone the inspection. When we requested proof of the injury, the borrower couldn’t deliver.

Meanwhile, the lender caused a trustee to be appointed in the bankruptcy case to investigate and possibly care for the home. Thinking he may be able to sell it for more than the liens, the trustee inspected the property. Imagine the trustee’s surprise when he discovered the borrower no longer lived there and, presumably out of spite, had removed all appliances and stripped the fixtures, sinks, etc.

Following this discovery, the trustee agreed to cooperate with the lender. We filed an ex parte application in state court and presented this sequence of events as evidence the lender should be allowed to take possession immediately, without appointing a receiver and before finishing the foreclosure. While the case was strong, decisions of this kind are practically unheard of, but in this case the court agreed.

In 30 years, this is the first time I’ve seen a court award possession of a home to the lender before completing the foreclosure. This just goes to show how creative and aggressive legal tactics can make the difference.