Lona v. Citibank, N.A.
134 Cal. Rptr. 3d 622, 2011 WL 6391584, 202 Cal.App.4th 89 (2011)
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Rule of Law:
A borrower is not required to tender the full amount of a secured debt to challenge a foreclosure sale if the borrower attacks the validity of the underlying loan itself, such as by presenting triable issues of material fact that the loan was unconscionable.
Facts:
- Jonas Z. Lona, who had an eighth-grade education and limited English fluency, owned a home as his separate property.
- Lona's annual income was approximately $40,000, which is about $3,333 per month.
- In January 2007, Lona refinanced his home by taking out two loans totaling $1.5 million, with the transaction conducted entirely in English.
- Lona claimed he did not understand the documents he was signing, which were presented to him very quickly without adequate explanation.
- The new loans required combined monthly payments of $12,381.36.
- In June 2007, five months after signing the loan documents, Lona defaulted on the first loan.
- In August 2008, Lona's home was sold at a nonjudicial foreclosure sale.
Procedural Posture:
- Jonas Z. Lona filed a complaint in the trial court against Citibank, N.A. (the lender) and EMC (the loan servicer), seeking to set aside a trustee's sale of his home.
- After various pleadings, only the cause of action to set aside the trustee's sale remained against Citibank and EMC.
- Citibank and EMC filed a motion for summary judgment, arguing Lona was required to tender the full amount of the loan to challenge the sale and had failed to do so.
- The trial court found no triable issue of material fact and granted summary judgment in favor of Citibank and EMC.
- Lona (appellant) appealed the trial court's grant of summary judgment to the California Court of Appeal.
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Issue:
Does a borrower raise a triable issue of material fact sufficient to survive summary judgment in an action to set aside a foreclosure sale by presenting evidence that the underlying loan was procedurally and substantively unconscionable, thereby potentially excusing the borrower from the tender requirement?
Opinions:
Majority - Walsh, J.
Yes. A borrower raises a triable issue of material fact sufficient to survive summary judgment by presenting evidence that the underlying loan was unconscionable, which may excuse the tender requirement. The court found that Lona presented sufficient evidence to create a triable issue of procedural unconscionability, citing the adhesive nature of the contract, Lona's limited education and English fluency, and the lack of explanation of the terms. Furthermore, the court found a triable issue of substantive unconscionability due to the extreme disparity between Lona's income ($3,333/month) and the monthly loan payments ($12,381.36). The defendants, Citibank and EMC, failed to meet their burden on summary judgment because their motion did not address a key exception to the tender rule that Lona had pleaded: that tender is not required when the validity of the underlying debt is attacked as void. Because the defendants failed to show Lona's unconscionability claim had no merit and failed to address the applicable exception to the tender rule, summary judgment was improper.
Analysis:
This decision is significant for borrowers challenging foreclosures based on allegations of predatory lending. It solidifies that a credible claim of unconscionability in the loan's origination is a valid basis for setting aside a foreclosure sale and, crucially, can excuse the borrower from the tender requirement. This lowers a major barrier for borrowers, who often cannot afford to tender the full loan amount, allowing them to proceed to trial on the merits of their claim that the loan was fundamentally unfair. The case highlights that courts will look at both the procedural context (unequal bargaining power, surprise) and the substantive terms (overly harsh results) of a loan to determine if it is unconscionable.
