Caporale et al v. Saxon Mortgages Services Inc. et al

OCR transcription for search; preserved printed pages are authoritative

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For The Northern District Of California
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UNITED STATES BANKRUPTCY COURT

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Entered on Docket
February 02, 2011

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

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NORTHERN DISTRICT OF CALIFORNIA
In re Case No. 079-§4|09-ASW

Richard Souza Caporale and

Isabel Souza Caporale, Chapter 7

Debtors.

Richard Souza Caporale and

Isabel Souza Caporale, Adv. No. 09-05050

vs.

Saxon Mortgage Services, Inc.,
Deutsche Bank National Trust
Company as Trustee for Morgan
Stanley, MSAC 2007-NC3; and
Does 1-10,

Defendants.

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MEMORANDUM DECISION RE ORDER TO SHOW CAUSE
RE PRELIMINARY INJUNCTION ORDER

Before the court is the request of Debtors Richard and Isabel
Caporale (collectively, “Plaintiffs”) for a preliminary injunction
restraining Defendants Saxon Mortgage Services, Inc. (“Saxon”) and
Deutsche Bank National Trust Company as trustee for Morgan Stanley

(“Deutsche Bank”) (collectively, “Defendants”) from foreclosing on

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Plaintiffs’ residence located at 14943 Conway Avenue, San Jose,
California (“the Property”). Defendants oppose Plaintiffs’ request
for a preliminary injunction.

A continued hearing on the request for a preliminary
injunction was held on August 25, 2010 and the matter has been
submitted for decision. Plaintiffs are represented by Marc
Voisenat, Esq. of the Law Offices of Marc Voisenat. Defendants are
represented by Desmond J. Hinds, Esq. of Hinshaw & Culbertson LLP.

This Memorandum Decision constitutes the Court’s findings of
fact and conclusions of law, pursuant to Rule 7052 of the Federal

Rules of Bankruptcy Procedure.

I.
FACTS

On February 23, 2007, Plaintiffs entered into a $930,000
promissory note (“Note”) in favor of New Century Mortgage (“New
Century”). The note was secured by a deed of trust on the Property
and was recorded on March 2, 2007.

On August 11, 2007, Mortgage Electronic Registration Systems
(“MERS”) -- as nominee for New Century ~- transferred New Century’s
interest in the deed of trust to Saxon. On August 17, 2007, Saxon
transferred Saxon’s interest in the deed of trust to Deutsche Bank.

On August 20, 2007, Saxon caused a Notice of Default to be
recorded asserting that, as of August 17, 2007, Plaintiffs were in
default in the amount of $28,369.81. Defendants assert that
Plaintiffs have made no payments on the Note since early 2007.

On October 11, 2007, an assignment from MERS, as nominee for

New Century assigning the deed of trust to Saxon on August 11,

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2007, was recorded. On November 27, 2007, Saxon published a Notice
of Trustee’s Sale. On December 10, 2007, Plaintiffs filed a
Chapter 13 bankruptcy case.

On April 28, 2008, Saxon transferred Saxon’s interest in the
deed of trust to Deutsche Bank. The assignment from Saxon to
Deutsche Bank was recorded on August 26, 2008.

Plaintiffs’ bankruptcy case was converted from Chapter 13 to
Chapter 7 on August 12, 2008. On December 17, 2008, Plaintiffs
received their discharge and Plaintiffs’ bankruptcy case was
closed.

On February 13, 2009, Defendants published a Notice of
Trustee’s Sale that set a foreclosure sale for March 2, 2009.
Plaintiffs state that, in the Notice of Trustee’s Sale, Defendants
claim Defendants attempted to contact Plaintiff Richard Caporale on
October 27, 2008 while Plaintiffs’ bankruptcy case was pending.
Plaintiff Richard Caporale denies this statement.

On February 23, 2009, Plaintiffs commenced this adversary
proceeding and filed a motion for a temporary restraining order.
The temporary restraining order was based on Plaintiffs’ assertion
that Defendants did not hold the original Note as well as that
Defendants had not complied with the requirements of California
Civil Code Section 2923.5. At a hearing on February 25, 2009, the
Court orally granted a temporary restraining order and set an order
to show cause regarding preliminary injunction for March 16, 2009.
A written temporary restraining order was entered on March 9, 2009.

On March 12, 2009, the parties stipulated to continue the
March 16, 2009 hearing to April 24, 2009. At the April 24, 2009

hearing, the Court extended the period of the injunction through

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May 29, 2009 and set a further hearing on May 28, 2009. The Court
extended the injunction on two bases: (1) it was unclear whether
Defendants held the original Note; and (2) Defendants had not
complied with the new foreclosure procedures required by California
Civil Code Section 2923.5. A written order embodying the oral
injunction was entered on May 5, 2009. At the May 28, 2009
hearing, the Court further extended the period of the injunction
through August 31, 2009, on the same bases as the April 24, 2009
hearing, and set a further hearing on August 31, 2009. A written
order embodying the oral injunction was entered on July 14, 2009.

Despite the injunction from the May 28, 2009 hearing,
Defendants foreclosed on the Property on June 3, 2009. Defendants
rescinded that sale on July 15, 2009 by recording of a Notice of
Rescission.

At the August 31, 2009 hearing, Plaintiffs agreed that
Defendants held the original Note. The remaining issue was whether
the Note and related deed of trust were transferred properly to
Defendants because the Note and related deed of trust were
transferred while New Century was in bankruptcy. The Court set a
further hearing on October 9, 2009. Whether Defendants had
complied with the new foreclosure procedures required pursuant to
California Civil Code Section 2923.5 was not addressed. No written
order was submitted by the parties or entered.

At the October 9, 2009 hearing, Defendants represented that
Defendants identified the paper trail showing that Defendants
properly hold the Note and related deed of trust and needed
additional time to document that trail. The Court set a further

hearing on November 23, 2009. The Court confirmed that whether

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1 || Defendants held the original Note was no longer at issue. The

2] Court indicated that once the standing issue was resolved, the

3 | Court would address other issues underlying the preliminary
4}}injunction, including payments to be made to Defendants because the
5 | Court was not going to allow Plaintiffs to reside in the property

6|) for free. No written order was submitted by the parties or

7 |) entered.

8 Prior to the November 23, 2009 hearing, the parties stipulated
9||to continue the hearing to December 11, 2009. The parties further
10] stipulated to continue the December 11, 2009 hearing to

11] February 12, 2010.

12 At the February 12, 2010 hearing, the Court noted that the

13] dispute between Plaintiffs and Defendants related to links in the
14] chain of title between New Century and Natixis Real Estate Capital,
15} Inc. (“Natixis”), the successor-in-interest to Ixis Real Estate

16 || Capital, Inc. (“Ixis”). Specifically, as of November 11, 2006, New
17 || Century entered into a Master Repurchase Agreement (“Repurchase

18 || Agreement”) with Ixis; however there was no direct statement in the
19} record showing that Natixis is the successor-in-interest to Ixis.
20 | In addition, there was no evidence that Plaintiffs’ loan was

21 || transferred to Natixis under the Repurchase Agreement.

22 The Court continued the February 12, 2010 hearing to permit

23] Defendants to work with Natixis and New Century in order to

24] establish Defendants’ chain of title. The matter was continued to
25] April 22, 2010 for scheduling purposes only. The April 22, 2010

26 || hearing was further continued to June 25, 2010 and eventually to

27} July 9, 2010. The August 25, 2010 hearing was set at the July 9,
28 || 2010 hearing.

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At the August 25, 2010 hearing, the parties agreed that the
only remaining disputed standing issue was with regard to transfer
of the loan from New Century to Natixis. The matter was taken
under submission at the end of hearing with the Court leaving the

preliminary injunction in effect until the Court decides otherwise.

Il.
APPLICABLE LAW
In order to obtain injunctive relief in the Ninth Circuit, the
moving party must show:

“(1) a strong likelihood of success on the merits,

(2) the possibility of irreparable injury to plaintiff if
preliminary relief is not granted, (3) a balance of
hardships favoring the plaintiff, and (4) advancement of
the public interest (in certain cases) .” Alternatively,
a court may grant the injunction if the plaintiff
“demonstrates either a combination of probable success on
the merits and the possibility of irreparable injury or
that serious questions are raised and the balance of
hardships tips sharply in his favor.”

As we have said many times regarding the two
alternative formulations of the preliminary injunction
test: “These two formulations represent two points on a
sliding scale in which the required degree of irreparable
harm increases as the probability of success decreases.
They are not separate tests but rather outer reaches of a
single continuum.”

Save Our Sonoran, Inc. v. Flowers, 408 F.3d 1113, 1120 (9th Cir.

2005) (emphasis in original) (citations omitted).

II.
ANALYSIS
A. Standing
The Court finds that Saxon has standing to foreclose on the

Property. There are four links in the transfer of the Note and

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related deed of trust to Defendants: (1) from New Century -- the
originator of the Note -- to Natixis; (2) from Natixis to Morgan
Stanley Mortgage Capital, Inc. (“Purchaser”); (3) from Purchaser to
Morgan Stanley ABS Capital I Inc. (“Morgan Stanley”); and (4) from
Morgan Stanley to Morgan Stanley ABS Capital I Inc. Trust 2007-NC3
(“Morgan Stanley Trust”), for which Deutsche Bank is the trustee
and Saxon is the loan servicer. Plaintiffs dispute that Natixis
obtained Plaintiffs’ loan from New Century, but Plaintiffs do not
dispute any other part of the chain of title. The parties agree
that Ixis and Natixis are same entity.

The Repurchase Agreement’ governs the transfer of Plaintiffs’
loan from New Century to Natixis. The Repurchase Agreement is a
contract between several related entities, including New Century
(collectively “Sellers”), and Natixis. Pursuant to the Repurchase
Agreement, Natixis purchased approximately 3,500 residential
mortgage loans originated by Sellers or Sellers’ affiliates
(“Transferred Loans”). The aggregate unpaid principal balance of
the Transferred Loans was approximately $799 million. Under the
Repurchase Agreement, Sellers agreed to transfer the Transferred
Loans and Natixis agreed to fund the Transferred Loans. The
Repurchase Agreement process involved three steps: (1) New Century
signed the loans; (2) New Century asked Natixis to fund the loans;
and (3) the loans were transferred to Natixis. The Repurchase
Agreement permitted New Century to fund loans made to individual

borrowers, such as Plaintiffs.

‘Exhibit D to the Declaration of John Hatzoglou filed on
June 8, 2010 as docket #75.

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Based on the evidence filed with the Court and explained at
the August 25, 2010 hearing, the Court finds that New Century
transferred Plaintiffs’ loan to Natixis’ predecessor-in-interest,
Ixis. On February 28, 2007, Deutsche Bank, as the custodian on
behalf of New Century, sent an email to Natixis’ predecessor, Ixis,
containing loan level data for loans that needed to be funded.
Plaintiffs’ loan is one of the loans identified in Deutsche Bank’s

email. Minutes later, Ixis approved the advance of over $71

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million to New Century and the loan pool including Plaintiffs’ loan
was funded by Natixis. There is no formal documentation of the
transfer from New Century to Ixis.?

Moreover, the loan number identifying Plaintiffs’ loan is
consistent across several documents filed with the Court. In
Exhibit B to the Supplemental Declaration of John Hatzoglou filed
June 23, 2010 (“June 23 Exhibit B”), the loan number corresponding
to the payee named “Centennial Bank” is #1012313445 with an
original balance of $930,000. This is the same loan number found
at the bottom of the Note. The same loan (#1012313445) is listed
in Exhibit E to the Declaration of John Hatzoglou filed May 13,
2010. Loan #1012313445 is also listed in Exhibit B to the
Supplemental Brief of Defendants Following Deposition of John
Hatzoglou filed August 13, 2010 (“August 13 Exhibit B”). Moreover,
the borrower identified in both the June 23 Exhibit B and the
August 13 Exhibit B is Richard Caporale, and the loan amount is
approximately $930,000, which is the principal amount of the loan.

Finally, as explained in great detail in the Declaration of Gary E.

> The Court finds this lack of documentation to be surprising,
even shocking, given the amount of money and property involved.

TION ORDER

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Devin filed on August 13, 2010, the reference to “Centennial Bank”
on the June 23 Exhibit B is not a mistake because the beneficiary
bank for Plaintiffs’ loan was Centennial Bank in Englewood,
Colorado, not New Century directly.

On March 8, 2007, shortly after Ixis funded the loan pool
including Plaintiffs’ loan, Ixis notified Sellers of certain events
of default under the Repurchase Agreement. On March 26, 2007, Ixis
issued a Notice of Disposition informing Sellers that Ixis was
selling the Transferred Loans at a public auction with final bids
due on April 11, 2007 pursuant to Ixis’ rights under the Repurchase
Agreement. On April 20, 2007, Natixis sold the Transferred Loans
to Purchaser. Purchaser subsequently sold the Plaintiffs’ loan to
Morgan Stanley and Morgan Stanley subsequently transferred
Plaintiffs’ loan to Morgan Stanley Trust, for which Deutsche Bank
is the trustee and Saxon is the loan servicer.

Based on the foregoing, the Court finds that Defendants have
standing to foreclose on the Property. Because Defendants have
standing, Plaintiffs have not shown a strong likelihood of success
on the merits, and the preliminary injunction should be lifted.

B. Violation of Stay

Plaintiffs have asserted that Natixis’ foreclosure violated
the automatic stay because the Note and related deed of trust was
transferred while New Century was in bankruptcy. The Court holds
that Natixis’ foreclosure was proper since, under Bankruptcy Code
Section 559 (“Section 559”), there is no stay of repossession with
regard to a Repurchase Agreement so Natixis’ foreclosure was proper

even if conducted while New Century was in bankruptcy.

ION ORDER

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The April 11, 2007 auction of the transferred loans does not
violate the automatic stay in New Century’s bankruptcy case, filed
in Delaware on April 2, 2007, for two reasons. First, under
Sections 7(b) and 9 of the Repurchase Agreement, the transactions
were intended to be sales and title to the purchased loans
transferred to Natixis and Natixis had free and unrestricted use of
the purchased loans. Second, under Section 25(b) of the Repurchase
Agreement, either party’s right to liquidate the purchased loans
delivered in connection with the transactions under the Repurchase
Agreement is a right of liquidation under Section 559. Section 559
provides that there is no stay of the contractual right of a
repurchase agreement participant to liquidate under a repurchase
agreement.

The exercise of a contractual right of a repo
participant or financial participant to cause the
liquidation, termination, or acceleration of a
repurchase agreement because of a condition of the kind
specified in section 365(e) (1) of this title shall not
be stayed, avoided, or otherwise limited by operation
of any provision of this title or by order of a court
or administrative agency in any proceeding under this
title ... . In the event that a repo participant or
financial participant liquidates one or more repurchase
agreements with a debtor and under the terms of one or
more such agreements has agreed to deliver assets
subject to repurchase agreements to the debtor, any
excess of the market prices received on liquidation of
such assets (or if any such assets are not disposed of
on the date of liquidation of such repurchase
agreements, at the prices available at the time of
liquidation of such repurchase agreements from a
generally recognized source or the most recent closing
bid quotation from such a source) over the sum of the
stated repurchase prices and all expenses in connection
with the liquidation of such repurchase agreements
shall be deemed property of the estate, subject to the
available rights of setoff. As used in this section,
the term “contractual right” includes a right set forth
in a rule or bylaw of a derivatives clearing
organization (as defined in the Commodity Exchange
Act), a multilateral clearing organization (as defined
in the Federal Deposit Insurance Corporation
Improvement Act of 1991), a national securities

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exchange, a national securities association, a
securities clearing agency, a contract market
designated under the Commodity Exchange Act, a
derivatives transaction execution facility registered
under the Commodity Exchange Act, or a board of trade
(as defined in the Commodity Exchange Act) or ina
resolution of the governing board thereof and a right,
whether or not evidenced in writing, arising under
common law, under law merchant or by reason of normal
business practice.

(Emphasis added). Bankruptcy Code sections 101(46) and 101(47)
define a repo participant and a repurchase agreement as:

In this title the following definitions shall apply:

(46) The term “repo participant” means an entity that, at
any time before the filing of the petition, has an
outstanding repurchase agreement with the debtor.

(47) The term “repurchase agreement” (which definition
also applies to a reverse repurchase agreement) --

(A) means--

(1) an agreement, including related terms, which
provides for the transfer of one or more
certificates of deposit, mortgage related
securities (as defined in section 3 of the
Securities Exchange Act of 1934), mortgage
loans, interests in mortgage related securities
or mortgage loans, eligible bankers'
acceptances, qualified foreign government
securities (defined as a security that is a
direct obligation of, or that is fully
guaranteed by, the central government of a
member of the Organization for Economic
Cooperation and Development), or securities that
are direct obligations of, or that are fully
guaranteed by, the United States or any agency
of the United States against the transfer of
funds by the transferee of such certificates of
deposit, eligible bankers' acceptances,
securities, mortgage loans, or interests, with a
simultaneous agreement by such transferee to
transfer to the transferor thereof certificates
of deposit, eligible bankers' acceptance,
securities, mortgage loans, or interests of the
kind described in this clause, at a date certain
not later than 1 year after such transfer or on
demand, against the transfer of funds;

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(ii) any combination of agreements or
transactions referred to in clauses (I) and
(iii);

(iii) an option to enter into an agreement or
transaction referred to in clause (I) or (ii);

(iv) a master agreement that provides for an
agreement or transaction referred to in clause
(I), (ii), or (iii), together with all
supplements to any such master agreement,
without regard to whether such master agreement
provides for an agreement or transaction that is
not a repurchase agreement under this paragraph,
except that such master agreement shall be
considered to be a repurchase agreement under
this paragraph only with respect to each
agreement or transaction under the master
agreement that is referred to in clause (I),
(ii), or (iii); or

(v) any security agreement or arrangement or
other credit enhancement related to any
agreement or transaction referred to in clause
(I), (ii), (i114), or (iv), including any
guarantee or reimbursement obligation by or to a
repo participant or financial participant in
connection with any agreement or transaction
referred to in any such clause, but not to
exceed the damages in connection with any such
agreement or transaction, measured in accordance
with section 562 of this title; and

(B) does not include a repurchase obligation under a
participation in a commercial mortgage loan.

Based on Bankruptcy Code Sections 559, 101(46) and 101(47), the
Court finds that there was no stay preventing Natixis from
liquidating the mortgage loans under the Repurchase Agreement post-
petition.

Cc. Compliance with California Civil Code Section 2924

The Court will lift the preliminary injunction conditioned upon
Defendants complying with the new foreclosure procedures required
pursuant to California Civil Code Section 2923.5 (“Section 2923.5”)

prior to foreclosing on the Property.

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In light of the high residential property foreclosure rates in
California -- which have adversely affected property values in the
state and will have deleterious effects on the state and local
economies -- the state of California enacted emergency legislation
in Section 2923.5. Effective September 6, 2008, Section 2923.5
Imodified the foreclosure process to require mortgagees,
beneficiaries, or authorized agents to contact borrowers and explore
options that could avoid foreclosure.’ Section 2923.5 applies to
mortgages and deeds of trust recorded from January 1, 2003 to
December 31, 2007, inclusive, that are secured by owner-occupied
residential real property containing no more than four dwelling
units, as is the case here.

Section 2923.5(a) provides that a mortgagee, trustee,
beneficiary or authorized agent may not file a notice of default
pursuant to California Civil Code Section 2924 (“Section 2924”)
until 30 days after initial contact with the borrower is made, in
person or by telephone, or after due diligence, to assess the
borrower’s financial situation and explore options for the borrower
to avoid foreclosure. However, if a notice of default has already
been filed prior to September 6, 2008, Section 2923.5(c) provides:

If a mortgagee, trustee, beneficiary, or authorized

agent had already filed the notice of default prior to the

enactment of this section and did not subsequently file a

notice of rescission, then the mortgagee, trustee,

beneficiary, or authorized agent shall, as part of the

notice of sale filed pursuant to Section 2924f, include a

declaration that either:

(1) States that the borrower was contacted
to assess the borrower’s financial situation and

to explore options for the borrower to avoid
foreclosure.

> Section 2923.5 was subsequently amended effective January 1,
2010. All references are to the amended statute.

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(2) Lists the efforts made, if any, to
contact the borrower in the event no contact was
made.

Here, Saxon recorded a Notice of Default on Plaintiffs’
residence on August 20, 2007. This Notice of Default was filed
prior to the date that Section 2923.5 took effect. A Notice of
Trustee’s Sale was published on November 26, 2007, and a foreclosure
sale was scheduled for December 11, 2007. The trustee’s sale was
postponed by the filing of Plaintiffs’ bankruptcy case on
December 10, 2007.

Section 2924g(c) (2) provides that if the sale proceedings are
postponed for a period or periods totaling more than 365 days, a new
notice of sale in the manner prescribed in Section 2924f must be
given before scheduling further sale proceedings. Here, Plaintiffs
were discharged on December 17, 2008 and Plaintiffs’ bankruptcy case
was closed on the same day. Relief from the automatic stay was
never granted with respect to Plaintiffs’ residence. Asa result,
the sale proceedings against Plaintiffs’ residence were postponed
for a period of more than 365 days and require a new notice of sale
in the manner prescribed in Section 2924f, and subject to the
requirement of Section 2923.5(c).

On February 13, 2009, Defendants published a Notice of
Trustee’s Sale with a foreclosure sale set for March 2, 2009.
Plaintiffs state that, in the Notice of Trustee's Sale, Defendants
claim Defendants attempted to contact Richard Caporale on
October 27, 2008 while Plaintiffs’ bankruptcy case was pending.
Plaintiffs deny this statement. Plaintiffs also assert that the
call notes are insufficient to meet the Section 2329.5 standards

because that law requires a declaration. This Court agrees.

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Section 2923.5(c) requires a declaration from Defendants
stating that Plaintiffs were contacted to assess Plaintiffs’
financial situation and to explore options for Plaintiffs to avoid
foreclosure. Even if Defendants, in fact, attempted to contact
Plaintiffs prior to filing the Notice of Trustee's Sale, this one
attempt was not enough to satisfy the new requirements of Section
2923.5. Defendants state only that they “attempted” to contact
Plaintiffs on October 27, 2008 and not that Defendants actually
contacted Plaintiffs. If no contact was made, Section 2923.5(c) (2)
requires Defendants list the efforts made -- if any -~ to contact
Plaintiffs. The record in this Court does not reflect that any
additional efforts were made to contact Plaintiffs. Filing a Notice
of Trustee’s Sale after only one attempt at contacting Plaintiffs
does not fit within the legislative intent of Section 2923.5, which
was enacted to promote early contact and communications between
beneficiaries and specified borrowers to explore options that could
avoid unnecessary foreclosure.

Section 2923.5(a) (2) provides:

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. During the
initial contact, the mortgagee, beneficiary, or authorized
agent shall advise the borrower that he or she has the
right to request a subsequent meeting and, if requested,
the mortgagee, beneficiary, or authorized agent shall
schedule the meeting to occur within 14 days. The
assessment of the borrower's financial situation and
discussion of options may occur during the first contact,
or at the subsequent meeting scheduled for that purpose.

In either case, the borrower shall be provided the
toll-free telephone number made available by the United
States Department of Housing and Urban Development (HUD)

to find a HUD-certified housing counseling agency. Any
meeting may occur telephonically.

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If, however, contact with the borrower could not be made, Section
2923.5(g) provides a “due diligence” requirement for a mortgagee,
trustee, beneficiary or authorized agent to meet regarding contact
with the borrower.

Section 2923.5(g) defines “due diligence” to mean that (1) a
jnortgagee, trustee, beneficiary or authorized agent shall first
attempt to contact a borrower by sending a first-class letter that

includes the toll-free telephone number made available by the

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Department of Housing and Urban Development (“HUD”) to find a HUD-
certified housing counseling agency; and (2) after such letter has
been sent, the mortgagee, trustee, beneficiary or authorized agent
shall attempt to contact the borrower by telephone at least three
times, at different hours, and on different days. Defendants only
allege that Defendants attempted contact Plaintiffs only once, on
October 27, 2008, and Plaintiffs contest that allegation. However,
even if Defendants’ allegation was factually correct, Defendants
cannot be said to have exercised due diligence, within the meaning
of Section 2923.5(g), in attempting to contact Plaintiffs.

Section 2923.5(g) goes on to state that the mortgagee, trustee,
beneficiary or authorized agent satisfies the telephone contact
requirements if it determines, after attempting contact as discussed
previously, that the borrower's primary and secondary telephone
numbers or numbers on file, if any, have been disconnected. There
is nothing before this Court to show Plaintiffs’ telephone number or
numbers have been disconnected.

Section 2923.5(g) further provides that if the borrower does
not respond within two weeks after the telephone call requirements

have been satisfied, the mortgagee, trustee, beneficiary or

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authorized agent shall then send a certified letter with return
receipt requested. Again, there are no facts presently before this
jCourt that show Defendants complied with attempting to contact
Plaintiffs by telephone at least three times at different hours and
on different days, or that Defendants sent Plaintiffs a certified
letter with return receipt requested.

The legislative intent of Section 2923.5 is to require

beneficiaries, such as Defendants, to exercise due diligence to

o Oo NN Dn NH FSF W WN

contact specified borrowers -- such as Plaintiffs -- before filing a
notice of default as well as before filing a notice of sale when a
notice of default was recorded prior to the enactment of this
legislation. Such a reading fits with the legislative intent of
requiring early contact and communications between beneficiaries and
borrowers to explore options that could avoid unnecessary
foreclosure, and advances the goal of preventing more foreclosures
that would add to the glut of foreclosed properties already on the
market.

D. Notice of Rescission Argument

Plaintiffs now contend that -- even if Defendants did not
previously need to meet the requirements of Section 2923.5 --
because Defendants filed a Notice of Rescission on July 15, 2009,
rescinding the foreclosure sale conducted on June 3, 2009,
Defendants now have to comply with the provisions of Section 2923.5
prior to recording a new notice of default. Plaintiffs base this
argument on the following language of Section 2923.5(c):

If a mortgagee, trustee, beneficiary, or authorized
agent had already filed the notice of default prior to the
enactment of this section and did not subsequently file a

notice of rescission, then the mortgagee, trustee,
beneficiary, or authorized agent shall, as part of the

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notice of sale filed pursuant to Section 2924f, include a
declaration that either:

(1) States that the borrower was contacted to assess
the borrower’s financial situation and to explore options
for the borrower to avoid foreclosure.

(2) Lists the efforts made, if any, to contact the
borrower in the event no contact was made.

(Emphasis added.) Plaintiffs’ reading of Section 2923.5 would
impose additional restrictions not otherwise required under
California law.

There are multiple instances in which a notice of rescission
can be filed in the non-judicial foreclosure process. Under
Section 2924c(a) (2), a notice of rescission of a notice of default
is to be filed within 21 days of a reinstatement of the loan.
Likewise, a foreclosing party can rescind a notice of trustee’s
Sale. However, rescinding a trustee’s sale does not rescind the
underlying notice of default and does not require the foreclosing
party to file a new notice of default. There is nothing in Section
2923.5 that indicates that the notice of rescission referred to in
Section 2923.5(c) includes a notice of rescission of a trustee’s
sale, and there is no indication that Section 2923.5(c) is intended
to change California law to invalidate a notice of default when only
a notice of rescission of a trustee’s sale is filed, although
Plaintiffs’ reading of Section 2923.5 would require such a result.

The Notice of Rescission recorded by Defendants on July 15,
2009 rescinded the trustee’s sale and purported trustee’s deed upon
sale dated June 3, 2009 and recorded on June 9, 2009. The Notice of
Rescission did not rescind the Notice of Default and this Court will

not construe Section 2923.5(c) to so provide.

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IV.
CONCLUSION

For the foregoing reasons, Plaintiffs’ motion for a preliminary
injunction is denied. Defendants have standing to foreclose on the
Property and there was no stay preventing Natixis from liquidating
the mortgage loans under the Repurchase Agreement. Because sale
proceedings against Plaintiffs’ residence have been postponed for
more than 365 days, a new notice of sale if required. The Court
lifts the preliminary injunction conditioned upon the requirement
that Defendants must record a new notice of sale as well as comply
with all of the requirements of Section 2923.5 prior to recording a
new notice of sale. Counsel for Plaintiffs shall prepare a form of
order consistent with this ruling and shall submit the proposed

order to the Court after serving counsel for Defendants.

Dated: 21/0 f 2 ;
f{——

ARTHUR S. WEISSBRODT
UNITED STATES BANKRUPTCY JUDGE

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Office of the U.S. Trustee
U.S. Federal Bldg.

280 S 1%* St. #268

San Jose, CA 95113-3004

Richard Souza Caporale
14943 Conway Avenue
San Jose, CA 95124

Isabel Ann Caporale
14943 Conway Avenue
San Jose, CA 95124

Marc Voisenat, Esq.

Law Offices of Marc Voisenat
1330 Broadway #1035

Oakland, CA 94612

Desmond J. Hinds, Esq.

Law Office of Hinshaw and Culbertson
11601 Wilshire Blvd. #800

Los Angeles, CA 90025

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