If you are a secured lender holding residential real estate in California as collateral, you will want to consider a ruling recently issued in Fonteno v. Wells Fargo Bank.

The Court held that residential borrowers are entitled to seek the equitable cancellation of a trustee’s deed issued following a completed non-judicial foreclosure sale, based on the lender’s failure to meet with borrowers prior to foreclosure as required by federal law (HUD regulations).

One of the more disconcerting parts of the decision is its effect on the “tender rule”, which requires that a borrower challenging a foreclosure sale allege that it has tendered the amount of debt due as a condition to challenging the sale.  The Court held that the borrower was not required to tender payment of the amount owed on their secured debt in order to seek the equitable cancellation of the trustee’s deed.

While the decision can be factually limited to the HUD regulations which require a pre-foreclosure meeting with a borrower, I expect debtors to rely heavily on this case in challenging completed foreclosures.

The message to lenders holding California residential real estate as collateral–comply with those pre-foreclosure meeting requirements or find a better way to get rid of your collateral fast.

Click the link below for the decision:

Fonteno v Wells Fargo Bank NA