Client Alert: From the Scheer Law Group: CA Court of Appeals Case Opens Door for Non-Owner Occupants to Assert HOBR Claims

Note: The following is a general discussion on the specified topic or issue and may not be relied on as legal advice in any specific case or matter you encounter. You should review any applicable case, or matter with counsel experienced in this area of law and should not generally rely on the discussion in this Alert.

Date: July 29, 2020
Client Alert:
To: All Scheer Law Group Clients and Affiliates:
From: Spencer Scheer
Subject: CA Court of Appeals Case Opens Door for Non-Owner Occupants to Assert HOBR Claims

The California Homeowners Bill of Rights (“HOBR”) restrains lender foreclosures and allows wide ranging consumer remedies to qualified consumer borrowers on residential properties.

It was previously generally accepted that many HOBR violations (i.e. dual tracking, single point of contact requirement, requests for pre-foreclosure injunctive relief etc ) could only be asserted by owner occupants. Not so, per the appellate court in Adams v. Bank of America, N.A. (2020) — Cal.Rptr.3d —- [51 Cal.App.5th 666]. In this case the lender asserted that the borrower could not assert HOBR rights because the borrower’s residence taken as security for the loan was foreclosed when the borrower filed suit. The lender argued that even though the borrower resided on the property as her residence, she was not the owner of the residential property{the foreclosing lender was).

The Appellate Court disagreed and found that the HOBR’s requirement (Cal. Civ. Code §2924.15) that the collateral property be “owner-occupied” did not require the borrower to be the owner of the property, but instead only required “that the property is the principal residence of the borrower and is security for a loan made for personal, family, or household purposes” {presumably at the time the loan was made}.

While there is some logic/fairness in allowing a foreclosed out homeowner to assert rights that were applicable to the homeowner during the foreclosure process, the danger is that this ruling can be expanded in ways very unfair to the lender. For example: A borrower who was an owner occupant and who moves off to rent it or who rents it while living on the property, could use the holding in the Adams to argue that HOBR rights are available, even though business or investment purpose loans would be generally exempt from HOBR restrictions. While Adams does not directly hold this, it is the next step. Given the likely resumption and proliferation of HOBR lawsuits when the current foreclose moratoriums expire, lenders should be aware of this possibility and the holding in the Adams case.

Please call or email if you have questions about this case.