Although the banks and foreclosure mill law firms argue that Lona v. Citibank
and challenging the original loan as unconscionable and/or
See also: the bank's reaction
An incredibly important case for homeowners, Lona v. Citibank addresses the issue that has barred countless California homeowners from fighting foreclosure: the tender requirement. Prior to Lona, the bank's had been very successful in arguing that a homeowner has no standing to contest a foreclosure unless the homeowner pays the full amount of the debt, or at least the full reinstatement amount. For obvious reasons, imposing the tender rule almost always creates an insurmountable obstacle that results in dismissal of the lawsuit. Although foreclosure defense attorneys have long cited well-established law that tender is not required in all circumstances, many trial courts invoked it as an absolute requirement. In a well-reasoned and thorough analysis of existing California case law, the court in Lona v. Citibank clarified (and affirmed) the four recognized exceptions to the tender requirement.
The unconscionable terms of the predatory refinance loans were also at issue in Lona v. Citibank. The court discussed the enforceability of the loan, not just against the original lender, but also against Citibank, as the assignee of the loan.
In 2007, Mr. Lona was solicited by a mortgage broker to refinance his residential property in Hollister, California. He obtained two loans from Franklin Financial, totalling $1.5 million. With monthly loan payments of $12,381 nearly four times more than his total monthly income of $3,333, Mr. Lona defaulted on his payments after just five months. Approximately a year and a half after origination, his home was sold at a non-judicial foreclosure sale. Citibank purchased the property at the trustee sale, claiming to be the current owner of the loan.
Even without considering Mr. Lona's modest income, the terms of both loans were onerous. The first loan of $1.25 million, required interest-only payments of $8,451 per month at an intial fixed rate of 8.2% for the first five years, with an adjustible interest rate for the remaining 25 years. The second mortgage for $375,000 had a fixed interest rate of 12.25%, monthly payments of $3,929, with a balloon payment of $327,009 due at the end of the 15-year term.
Mr. Lona filed a lawsuit to set aside the foreclosure, claiming that the loans were illegal and unenforceable from the time they were made (void ab nito), based primarily on the failure to consider his ability to repay the debt and Mr. Lona's misunderstanding of the loan terms due to limited education and English proficiency. Prior to trial, Citibank and EMC (the servicer) brought amotion for summary judgment, A procedural device used during civil litigation dispose of a case without the need for trial. The party bringing the motion argues that there is no dispute as to the material facts of the case (opposing party has insufficient evidence to support claims or defenses) and a party is entitled to judgment as a Matter of Law. arguing that Citibank could not be required to set aside the foreclosure sale because Lona:
- had not made a valid offer of tender;
- had failed to show an irregularity in the foreclosure procedure necessary to overcome the presumption that the sale was proper;
- had voluntarily entered into the loans.
Note: Citibank and EMC did not address the underlying basis of Lona's claims!