Legal win means little after foreclosure

Carolyn Said

Published 4:41 p.m., Wednesday, October 31, 2012

Mark Gin talks with his wife, Jenny, in the living room of their San Francisco home with daughters Emily, 8 months, and Angela, 3. The Gins' home in Brisbane was foreclosed on. Photo: Lea Suzuki, The Chronicle / SF

While Mark and Jenny Gin were making dozens of calls and submitting reams of paperwork to get a loan modification from OneWest Bank, another department of the bank proceeded to foreclose on their Brisbane home.

That's not unusual. Thousands of homeowners have complained about such "dual tracking" - so many, in fact, that California will ban the practice starting Jan. 1, when the state Homeowners Bill of Rights takes effect.

What distinguishes the Gin family is that they sued - and won. A San Mateo Superior Court jury last month found that OneWest acted fraudulently. Legal experts said it may be the first instance of a California jury finding that a bank committed wrongful foreclosure by dual tracking.

However, the jury awarded the Gins just $13,500, which didn't even cover their legal expenses. To get the house back, they'd have to pony up the full amount they owe on the mortgage, which they can't do.

A cautionary tale

Their story is a cautionary tale that illuminates California's legal landscape for the many homeowners who feel they were wrongfully foreclosed upon. Even in the rare instances where borrowers prevail against banks in court, the rewards may not be worth their trouble.

Despite his legal victory, Mark Gin is disenchanted with the system.

"Wait a minute, I thought this was America," he said. "If someone defrauds you, you go to court and the wrongdoer should make the other side whole. The jury found there was fraud and (OneWest) wrongfully foreclosed on the property, but they said 'That's OK because (OneWest's) lawyer indicated it was upside down.' If that's the case, it means it's OK for banks to foreclose on anybody who's upside down."

His attorney, Steven Finley of San Francisco's Hennefer, Finley & Wood, explained the reasoning. The jury "found that the foreclosure was wrongful and fraudulent, but because the property was underwater, (the Gins) received no damages," he said. "Under wrongful foreclosure actions, you only get lost equity."

California offers just two remedies for wrongful foreclosure, Finley said. One is damages, but they are limited to lost equity. The other is to get the house back, but that requires tendering all the money owed on the mortgage.

"California really screws the borrower. If your house was wrongfully foreclosed and you want it back, you have to offer the whole amount," Finley said.

The jury declined to award punitive damages. "Jurors said, 'We feel your client has been defrauded but it wasn't directed maliciously against him,' " Finley said.

The $13,500 awarded to the Gins was to pay them back for a remodeling project they had started. With their first child on the way, they borrowed money from relatives to make the house more child-friendly after being assured by OneWest that they would receive a loan modification, Gin said.

OneWest did not return calls for comment.

Gin was particularly unhappy because the judge barred testimony on about six months of his bank negotiations. His original mortgage servicer was IndyWest Bank, which went belly-up during the housing downturn and was taken over by the Federal Deposit Insurance Corp.

When he sought a loan modification, he said the FDIC told him to deliberately skip payments to be considered for assistance. The judge barred testimony about spoken FDIC representations.

"I did whatever they told me to, and nothing happened," Gin said.

The couple never received a notice of default for being in arrears, but did receive a notice of trustee sale - the penultimate step in the foreclosure process. "They called up and (the bank) said, 'Don't worry about that, just send in your loan modification application, and you'll hear within 30 to 60 days,' " Finley said.

Instead, "One day, out of the blue, someone came and said your house has been foreclosed on and you no longer own it."

That happened in July 2009, but the Gins filed legal challenges against an eviction that let them remain in the house for 2 1/2 years.

The Gins finally were evicted in January while Jenny Gin was eight months pregnant with their second daughter and had just been diagnosed with breast cancer.

'The bank blew it'

Most cases in which California homeowners allege the bank botched a foreclosure never get to trial. Either they get kicked out on procedural grounds or the bank offers a settlement, such as a loan modification that makes the monthly payments affordable.

The Gin case only made it to trial by a fluke, Finley said.

"The bank blew it," he said. "They filed a motion for summary judgment, which is how these cases usually get thrown out, but ... it was denied because they served the wrong party. We then set a trial date eight months hence, and they didn't refile the motion for summary judgment (by the deadline) of 105 days before the trial date."

At trial, Finley showed that OneWest violated a 2009 law, the California Foreclosure Prevention Act (which sunsetted in 2011), which required lenders to give borrowers an additional 60 days before filing a notice of trustee sale.

"But the key thing was that one part of the bank was telling Gin that he would be getting a loan modification and the other part of the bank was going ahead with the foreclosure," he said.

The Gin case "doesn't establish a precedent because it is just a trial court case," not an appellate court case, said Kent Qian, staff attorney with the National Housing Law Project in San Francisco, who was not involved in the case. "But certainly when other parties look to settle cases, they could look to this verdict as an indication of how juries put a value to these cases."

Not encouraging

The case is unlikely to encourage people who want to sue.

"The economics of bringing these cases are not in favor of the plaintiffs," Qian said. "Under California law, you don't get attorneys' fees unless you are suing under a contract that provides for them, or there is an attorneys' fee provision in statute."

The legal landscape will change next year, however.

The Homeowners Bill of Rights not only explicitly bans dual tracking, it also lays out a path for homeowners to sue if the practice occurs after Jan. 1.

If a home has not yet been foreclosed upon, the homeowners can seek an injunction to stop the foreclosure. If it's granted, they will be entitled to attorneys' fees, but cannot seek damages under the statute. If a foreclosure has occurred, they can seek damages and will also receive attorneys' fees if they prevail in court.

Gin, who emigrated from China at age 9, started a photocopying shop at age 19 and grew it into a string of eight shops that were then hurt by the economic downturn, which is why he sought a loan modification.

He and his wife, who is recovering from her breast cancer treatments, and daughters Angela, age 3, and Emily, 8 months, now live in San Francisco.

"We're evaluating a second suit to try to get the house back," Finley said.

"All this stuff we believe in - be a law-abiding citizen and if something goes wrong, there's a system out there to correct it - I feel like it doesn't work," Gin said.

Carolyn Said is a San Francisco Chronicle staff writer. E-mail: csaid@sfchronicle.com