Financial Institutions Law Blog

By Erik Bliss and Alejandro Moreno

In Skov v. U.S. Bank N.A., 2102 WL 2549811 (June 8, 2023), the Court of Appeal reversed the trial court’s decision to sustain a demurrer against plaintiff Andrea Skov’s second amended complaint, holding that she had stated a claim for violation of Civil Code Section 2923.5, which requires a lender to contact a defaulted borrower to discuss alternatives to foreclosure before starting a nonjudicial foreclosure by recording a notice of default. This opinion discusses issues of (1) judicial notice, (2) MERS’ ability to foreclose, and (3) the pleading of a violation of Section 2923.5. Skov defaulted on her $1.5 million residential mortgage loan, and MERS began foreclosure proceedings (and later assigned the Deed of Trust to U.S. Bank). Skov sued, alleging that “since U.S. Bank and MERS were not assignees of the original note… they did not have the right to exercise the power of sale.” Skov also alleged that U.S. Bank “did not contact or attempt to contact” Skov before recording a Notice of Default. The trial court sustained U.S. Bank’s demurrer.

On appeal, the Court first tackled the issue of judicial notice of the documents recorded as part of the foreclosure process. The designation of various parties as “beneficiary” and “lender” in those documents and statements contained in those documents – particularly the declaration of compliance with Section 2923.5 that accompanied the default notice – were important in evaluating Skov’s claims. Following Fontenot v. Wells Fargo Bank, N.A.(2011) 198 Cal.App.4th 256, ,the Court held that “facts arising from the legal effect of the documents, such as the status of an entity as the beneficiary, trustee, or its agent,” were properly subject to judicial notice, but that “statements of fact . . , such as whether there was statutory compliance with section 2923.5,” were not.

Second, the Court rejected Skov’s claim that “MERS lacked authority to execute the notice of default and the assignment of the deed of trust, and thus each of those foreclosure documents was void.” The Court noted that under Civil Code section 2924, “[a] notice of default must be recorded by the trustee, beneficiary, or an agent of either,” and that MERS was the beneficiary, and that NDEx West properly signed the notice as MERS’ agent. In short, “MERS was authorized to assign the deed of trust and commence foreclosure.”

Third, the Court concluded that Skov had specifically alleged that U.S. Bank did not contact her to discuss her loan and foreclosure avoidance options and had, therefore, properly stated a claim under Section 2923.5. It held that the declaration of compliance in the Notice of Default, i.e., that “the requirements of section 2923.5 had been met,” did not trump Skov’s allegations and, as noted above, the Court could not take judicial notice of the facts stated in the declaration. Consistent with Mabry v. Superior Court (2010) 185 Cal.App.4th 208, the Court held that Section 2923.5 provided a private right of action and was not preempted by the National Bank Act (so long as Section 2923.5 was “very narrowly construed.”)

Authored by:

Erik S. Bliss
(619) 338-6527
[email protected]

Alejandro E. Moreno
(619) 338-6664
[email protected]