Bardasian v Superior Court 12/15/11
Preliminary Injunction; Ruling on the merits; Civil Code section 2923.5
In July 2010, the Bardasians sued for fraud and related claims arising out of their mortgage loan that closed in October 2005 for their home. In September, 2010, a notice of default was recorded against the property. A declaration attached to the notice stated the Bank had contacted the borrower, “…to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” In December 2010, the Bardasians moved for a preliminary injunction to enjoin a trustee’s sale of their home based on the failure to comply with Civil Code section 2923.5(a) which requires contacting the borrower to assess options to avoid foreclosure.
The plaintiffs filed a declaration from Mrs. Bardasian, stating that she had not been contacted by anyone acting on behalf of anyone claiming to be her lender, nor by anyone to explore options to foreclosure or to assess her financial condition.. JP Morgan Chase was added as a Doe defendant. In April, 2011, the plaintiffs moved for a temporary restraining order to restrain the trustee’s sale of their home that was scheduled for April 14, 2011. On April 7, 2011, the trial court granted the TRO, and set an order to show cause hearing. In its opposition, JP Morgan argued that plaintiffs should be required to file an undertaking, based on 6 months of reasonable rent.
The Trial Court found that plaintiffs had proven the defendants did not comply with Civil Code section 2923.5 prior to issuing the notice of default. It found that the loan modification 3 years before the notice of default failed to comply with the code section. Additionally, the form declaration attached to the notice of default did not satisfy the defendants’ burden of proving contact was made. Pursuant to Mabry v Superior Court (2010) 185 Cal.App.4th 208, if Civil Code section 2923.5 is not complied with, then there is no valid notice of default, and without a valid notice of default, a foreclosure sale cannot proceed. The foreclosure sale was ordered enjoined, but plaintiffs were ordered to post a bond in the amount of $20,000, and to make monthly payments of $500, as plaintiffs were almost $100,000 behind on their payments.
On June 7, 2011, one of the defendants filed a motion to dissolve the preliminary injunction because the plaintiffs had not posted the $20,000 bond or made the first $500 payment. The court granted the motion. Plaintiffs moved for a writ of mandate, requesting the 3rd District Court of Appeal to direct the trial court to issue an order enjoining the defendants from selling the property until they complied with section 2923.5 and that the order not require a bond. The Justices issued an alternative writ, directing the trial court to grant the relief or show cause why it should not be granted. The trial court stayed its order dissolving the injunction.
Plaintiffs claim the trial court erred because it had already ruled on the merits of their claim that the lender failed to comply with section 2923.5. The DCA noted that a preliminary injunction is an order that is sought by a plaintiff prior to a full adjudication of the merits of its claim and requires evaluating the likelihood that the plaintiff will prevail on the merits. (White v Davis (2003) 30 Cal.4th 528) The whole theory of a preliminary injunction is to preserve the rights of the party until the truth of the charge can be regularly investigated. It is called by the code a “provisional remedy.” (Lambert v Haskell (1889) 80 Cal. 611) The purpose of an undertaking is to protect the defendant against losses incurred due to granting the preliminary injunction if the defendant prevails on the merits.
When the court grants an injunction based on a decision on the merits, the court cannot order an undertaking because the injunction is not “preliminary” at all. (Shahen v Superior Court (1941) 46 Cal.App.2d 187) Thus the question raised by the Justices is whether the trial court issued a decision on the merits when it granted the preliminary injunction?
Ordinarily, a trial court evaluates two interrelated factors when deciding whether or not to issue a preliminary injunction. The first is the likelihood that the plaintiff will prevail on the merits at trial. The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compared to the harm that the defendant is likely to suffer if the preliminary injunction were issued. (IT Corp. v County of Imperial (1983) 35 Cal.3d 63) Generally, the granting or denying of a preliminary injunction does not constitute an adjudication of the ultimate rights in controversy. Here, however, the trial court did not undertake to decide the likelihood the plaintiff would be able to prove at trial that the lender failed to comply with section 2923.5. Instead the court decided that question on the merits when it stated, “Plaintiff has established that BAC Home Loan Servicing did not comply with Civil Code section 2923.5 prior to the issuance of the notice of default on September 15, 2010.
The court based its decision on plaintiff’s declaration that no contact had been made with her at least 30 days before the notice of default was issued. The court also rejected the defense arguments that the lender had complied with the statute. The first defense assertion was that the loan modification in 2007 contained adequate notice. The court noted plaintiff’s declaration stated there had been no such discussion, and it found the loan modification three years before the default notice was not compliance with the code. With respect to the second lender argument, the trial court found the form declaration attached to the notice of default was hearsay, and it was conclusory, failing to state who made the contact with the borrower and when.
The lenders pointed out that the court was presented with competing declarations and the trial court merely found the lenders’ declaration did not satisfy the evidentiary burden on a motion for preliminary injunction to rebut plaintiff’s evidence that no such contact was made. JP Morgan argues that the conclusion does not preclude a later determination that the injunction could have been wrongfully issued. No defendant had answered as of yet, and no discovery had been conducted.
The Justices observed that the trial court had stated its job was to determine who “is telling the truth.” It did so by crediting Brenda Bardasian’s declarations. Moreover, the ruling did not leave open the possibility that it might determine later the injunction was issued wrongfully. To the contrary, it specifically ruled, “Plaintiff has established that BAC Home Loan Servicing did not comply with Civil Code section 2923.5 prior to the issuance of the notice of default on September 15, 2010.” Without compliance, there is no valid notice of default, and thus, the foreclosure sale cannot proceed.
Compliance with the notice statute is the only issue in the suit. Because the trial court ruled on the merits of the plaintiffs’ claim, the court could not order plaintiffs to provide an undertaking. The court therefore erred when it dissolved the injunction based on plaintiffs’ failure to comply with the undertaking requirement, because the institution of that requirement was unauthorized in the first place.
A peremptory writ of mandate shall issue directing the trial court to modify its May 2011 order requiring a bond and monthly rent payments, and to dissolve the injunction and enter a new order denying the motion to dissolve the injunction. Plaintiffs shall recover their costs for this proceeding.
Case Study by Sacramento mediator Ernie Long