Residential Borrower Has Private Right Of Action If Lender Fails To Contact Borrower Prior To Recording A Notice Of Default

In Skov v. U.S. Bank N.A. (— Cal.Rptr.3d —-, Cal.App. 6 Dist., June 8, 2012), a California Court of Appeal considered whether a residential property owner could bring a private action after being foreclosed upon by a lending institution without first being contacted by the lender.  The court ruled that because Civil Code Section 2923.5 requires that before a notice of default is recorded a lender must contact a borrower “in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure”, the borrower had a right to bring a private action against a lender that failed to comply with the statute. 


In 2003, Andrea Skov obtained a loan of $1.5 million secured by a deed of trust on a residential property.  After Skov fell behind on her payments in 2009, she was served with a notice of default.  Skov filed suit against U.S. Bank for, among other things, unlawful business practices charging that it had failed to comply with Section 2923.5 because it did not contact her or attempt to contact her to discuss her options to avoid foreclosure prior to filing the notice of default. 

U.S. Bank filed a demurrer to Skov’s complaint, which the trial court sustained.  Skov appealed.


The court reviewed the language of Section 2923.5, which provides that a lender must 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” or satisfy due diligence requirements before a notice of default is filed.  Skov and U.S. Bank disagree over whether U.S. Bank complied with the statute, which is a question of fact.  The court said, “Assuming the truth of Skov’s allegations, the issue of compliance cannot be resolved at this stage of the litigation.”

The court acknowledged that while it is true that Section 2923.5 does not expressly provide for a private right of action, there are no other remedies available to a borrower if there is a violation of the statute.  In agreeing with a previous Appellate Court ruling, the court read Section 2923.5 in conjunction with Section 2924g subdivision (c)(1)(A), which outlines the grounds for a court to postpone a foreclosure sale, and agreed that “when read together, [they] establish a natural, logical whole, and one wholly consonant with the Legislature’s intent that borrowers and lenders “assess” and “explore” alternatives to foreclosure.”  Therefore, the court concluded, “If 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.”  Without an individual right of action to enforce it, Section 2923.5 would become “a meaningless dead letter.”  Therefore, the court reasoned that the Legislature must have intended to allow it.

Since there was a factual question as to whether there was compliance with the requirements of Section 2923.5 prior to the filing of the notice of default, the trial court erred in sustaining the demurrer.  The judgment was reversed.


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