Forgot Password? | Print Page | Sign In | Create User Profile
Homeowners Call California Program a Magnet for Fraud


550x65 ver 003661

Homeowners Call California Program a Magnet for Fraud

by Robert Kahn of Courthouse News Service

October 24, 2018

(CN) — An elderly California woman suffering from stroke, dementia and cancer claims in court that she was charged $129,000 — “more than double the normal price” — for work on her home she did not need, and to replace items she had recently upgraded. Five other poor, elderly homeowners also sued Oakland-based Renew Financial Holdings, on similar charges, in April.

These lawsuits and dozens of others in the past two years involve California’s Property Assessed Clean Energy program, or PACE, which the Legislature authorized local governments to implement in 2008.

The program, according to Los Angeles County’s PACE webpage, “enables homeowners to install energy efficiency, renewable energy and water-saving improvements to their properties without putting any money down!”

Los Angeles County adopted the PACE program in 2012 and “delegated administrative responsibility to Renew Financial and Renovate America in 2015,” according to two April 12 lawsuits in L.A. Superior Court.

As the county’s private lender partners, Renew Financial and Renovate America oversee — or fail to oversee — the contractors who do the work, and tack on administrative fees, generally about 15 to 20 percent.

On April 12, five homeowners sued Renew Financial and L.A. County, and four sued Renovate America and the county. Lead counsels in both suits were Irell & Manella and Public Counsel, both of Los Angeles. Both lawsuits claim that Renew Financial, Renovate America and L.A. County “have spread a plague on thousands of low-income, elderly, and non-native English-speaking homeowners”.

Dozens of other lawsuits, whose defendants include the counties of Los Angeles, San Diego, Riverside, Kern, and San Bernardino, make similar claims against Renew Financial and Renovate America, and the contractors that do the work, and allegedly overcharge for it.

The 40 PACE-related lawsuits filed in California in the past two years assert charges that include fraud, negligence, elder financial abuse, breach of contract, and violations of state laws, including unfair competition and breach of contracts.

Renew Financial has been sued 14 times this year, 13 of them in California courts, according to the Courthouse News database. Charges in the similar lawsuits include financial elder abuse, forgery, bad faith, fraud, misrepresentation, negligence, unfair business practices and infliction of emotional distress.

A July 30 lawsuit in San Diego Superior Court seeks class action certification. The attorney in that lawsuit, James Swiderski, could not be reached immediately for comment Wednesday.

Renew Financial spokesman Colin Bishopp said in an email Tuesday that the company “cannot comment on pending litigation.” Renew’s four top-ranking executives, including its CEO, founder, general counsel and executive vice president for governmental affairs, did not respond to requests for comment.

Renovate America has been sued 27 times on similar charges since 2016, according to the Courthouse News database. Renovate America, based in San Diego, said it could not comment Wednesday.

As for the county defendants, Kern County Counsel Mark Nations said his county was sued for alleged violations of the Public Records Act. “That lawsuit was resolved and dismissed,” Nations said in an email to Courthouse News. “I am unaware of any other lawsuit regarding PACE.”

The Los Angeles county counsel said he was unaware of any PACE-related lawsuits. County counsels for San Diego, Riverside and San Bernardino counties did not respond to emailed requests for comment.

The most recent lawsuit, 71-year-old Valerie Morehouse’s Oct. 19 claim in Contra Costa County Superior Court, includes Green Bay Remodeling, of Concord, as co-defendant with Renew Financial.

Morehouse’s attorney Thomas McCormick, of Orinda, told Courthouse News: “My personal opinion is that the contractors are taking advantage, since they know they do not need to qualify homeowners for the loans — contractors sell the program basically as free improvements to unknowable homeowners. Then the private finance companies, like Renew Financial, are letting the contractors get away with taking advantage of homeowners because the private finance companies get a 15 to 20 percent ‘administration fee.’ This encourages the private finance companies to not monitor the contractors.”

An office worker at Green Bay Remodeling on Tuesday referred a request for comment to the company’s attorney, Efrat Levy, who said she was busy, and did not return the call Tuesday or Wednesday.

According to Morehouse’s 30-page lawsuit: “Green Bay, as a certified ‘PACE Contractor,’ was the source from which Ms. Morehouse received, or did not receive, information about the PACE program. … Ms. Morehouse did not receive a copy of the PACE financing contract until after the improvement work had already started and then she became obligated to pay for that work.”

The complaint continues: “Defendant Green Bay acted as an unscrupulous contractor by selling Ms. Morehouse overpriced goods and services, items that she did not need, items that were not necessary for her home, and items which she had recently updated, all financed by the PACE program. All the while, Ms. Morehouse suffered from cancer treatments, a stroke, and dementia.”

Green Bay charged Morehouse $111,065 “for work that would have normally cost less than $50,000,” according to the lawsuit. Renew Financial tacked on 16 percent in fees, and billed her $129,268, according to the lawsuit, which itemizes the charges, which include $29,004 for 11 windows and two sliding glass doors.
Another itemized charge — for three windows, a “slider” and a front door — came to $16,740 for Green Bay, and a total of $19,745 after Renew Financial tacked on an 18 percent fee.

“Green Bay was able to charge Ms. Morehouse more than double the normal price because Ms. Morehouse is an elderly person with limited knowledge and was suffering from dementia,” attorney McCormick wrote.
Renew Financial recorded five PACE liens on her home, at an average interest rate of 9.4 percent, making her liable for 20 years of payments at $15,608 a year, for a total of $312,158. Her home is valued at about $375,000, according to the lawsuit. McCormick calls the interest rate “usurious” in the complaint.

He seeks an injunction, discharge of the liens, and damages for financial elder abuse, breach of contract, unfair competition, fraud, negligent misrepresentation and negligence.

“This is why regulation and oversight is necessary — to keep unscrupulous people from taking advantage of others,” McCormick said in an interview. “Hopefully, Renew Financial will do the right thing and correct this situation.”

(After this article was published, San Bernardino County spokesman David Wert said in an email that his county’s PACE program is administered by the San Bernardino County Transportation Authority, which is a regional government agency separate from county government.)



Two recent decisions by the California Court of Appeals have dealt Deed of Trust holders a huge blow in their ability to directly recover attorneys’ fees after successfully defending challenges to their DOT.1 In both Hart v. Clear Recon Corp and Nationstar and Chacker v. JPMorgan Chase Bank, separate panels of the Second Appellate District held that the provisions in the standard form Deed of Trust relied on by the prevailing lender, only allowed the holder to add fees and costs incurred in defending the litigation to the loan balance--the provisions did NOT, however, allow for a separately recoverable fee award against the borrower. In other words, if the property does not have sufficient equity to cover these amounts, the holder is out of luck. And, even worse, if the defendant assigned away its interest in the DOT prior to judgment, it is completely out of luck as it would not even have the potential for recovering its fees through the foreclosure sale; or, as the Court, quoting the late Justice Scalia in another context, stated in Chacker, the assignor “must take the bitter with the sweet.”2

The facts and ruling of both cases are relatively similar. In Chacker, the borrower sued Chase to stop the foreclosure sale. Chase’s Demurrer was sustained without leave to amend, and the trial court entered a judgment of dismissal. Chase’s attorneys then moved for attorney’s fees under the standard language of paragraphs 9 and 14 of the DOT, which was granted by the trial court. The Court of Appeal reversed, vacating the judgement for fees and ordering Chase’s attorney’s fees could only be added to the loan balance, not collected directly from the borrower.

The published portion of the appeal did not focus on Chase’s right to recover fees or the amount of the fees. Instead, the decision focused on whether paragraphs 9 and 14 of the DOT limit Chase to adding the fees to the amount owed under the DOT or, whether these provisions supported a separate judgment against the borrower, independent of its repayment obligations under the Note and DOT. Paragraph 9 of the relevant DOT provided that the lender may pay reasonable attorney’s fees to protect its interest in the property or DOT. However, the plain language of the DOT specifies that “any amounts disbursed by Lender under this Section 9 shall become additional debt of the Borrower secured by this [DOT].” The Court held that the plain language of Paragraph 9 did not provide for a separate award of attorney’s fees. Likewise, Paragraph 14 of the DOT states that the lender may “charge” the borrower fees for services performed in connection with borrower’s default, for the purpose of protecting lender’s interest in the property or DOT, including attorney’s fees. However, again, the plain language of this paragraph provides that the attorney’s fees are to be added or “charged” to the loan balance. As a result, Paragraph 14 did not permit a freestanding contractual attorney fee award. Paragraph 9 and 14 of Chase’s DOT reflect standard language used by most institutional residential lenders.

Adding insult to injury, and leading to its quote from Justice Scalia, the Court rejected Chase’s point that the adding of the fees to the loan balance did nothing to assist Chase in recovering the fees it had incurred because it no longer had any interest in the loan, as the rights had been assigned to another financial institution and therefore would not be paid out of any subsequent foreclosure. The Court observed that Chase could have protected itself against that result by including language in the assignment “to account for how attorney fees may be recovered when a borrower defaults.”

In Hart, two Plaintiffs (mother and son) sued Nationstar for wrongful foreclosure. Neither Plaintiff was the  borrower under the DOT. The sole borrower was not a party to the action. Nationstar obtained summary judgment on the basis that the Plaintiffs were not borrowers, and therefore had no rights under the DOT, and had no right to sue to stop the foreclosure. Nationstar’s attorneys sought its attorney’s fees as a prevailing party under the DOT. Unlike in Chacker, Nationstar relied exclusively on the attorney fee language in Paragraph 9 of the DOT. Like Chase’s DOT, Paragraph 9 of Nationstar’s DOT provided that, if there is a legal proceeding that might significantly affect the lender’s interest in the property or security, the lender may do and pay for whatever is reasonable to protect the lender’s interest, including paying attorney’s fees to defend itself in a lawsuit. The provision then provides that “[a]ny amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument.” Trial Court granted Nationstar’s attorney’s fees motion, holding that  paragraph 9 of the DOT was an attorney’s fees provision. The Court of Appeals reversed, holding that the  Paragraph 9 did not permit an award of attorneys’ fees against the plaintiffs.

On appeal, Nationstar argued that it was entitled to a fee award under Paragraphs 9, 14 and 22 of the DOT, as well as the Note. The Court of Appeals refused to consider on appeal whether Paragraphs 14 or 22 of the DOT, or the Note itself, justified an award because Nationstar had failed to raise these arguments at the trial court level. Instead, the Court focused exclusively on what was before it – Paragraph 9. Like in Chacker, the Court concluded that the plain language of paragraph 9 does not provide for an award of attorney’s fees. Rather, it is “a provision that attorney’s fees, like any other expenses the lender may incur to protect its interest, will be added to the secured debt.” The Court did, however, note that the result may have been different had Nationstar moved originally under Paragraph 22. Likewise, and as discussed more below, we believe the result could be different if the lender had moved for fees under the language in the Note.

What do these decisions mean for a lender or servicer who successfully defends a challenge to the foreclosure or DOT brought by the borrower or a related party? While the Hart and Chacker decisions are disheartening on their face, there are options for getting around their holdings. In addition, the decisions raise several interesting issues for a lender or loan servicer to consider, including:

  1. Review your DOT: While most institutional lenders use DOTs with similar language to the ones at issue in these two cases, the language in conventional, private party and some older DOTs vary. At the onset of your case, we suggest looking at your specific DOT to determine whether it has language that varies from the language in the Chase and Nationstar DOTs.

  2.  Move for fees under Paragraph 22 of the Note: Although rejected as not timely raised, Nationstar raised an excellent argument on appeal, i.e., that the language in the acceleration Paragraph 22, provided for attorney’s fees, but did not restrict the recovery of those fees to adding the fees to the amounts owed under the Note and DOT. Likewise, many Notes contain language providing for attorney’s fees to the prevailing lender. If the Note involved in your litigation contains favorable attorney fee language, use that as the basis for your fee motion.

  3.  Post-foreclosure fees: While not directly addressed in either of the Court’s rulings,  without  another ground for a fee judgment, lenders are presumably barred from recovering fees post-foreclosure. If the lender’s only recourse is to add the fees to the amount owed under the Note and DOT and the foreclosure sale has already occurred, there is no loan to add the fees to!

  4. Recovering fees post-transfer: As Chase found out the hard way, while you may be entitled to add fees to the Note and DOT, that process is complicated if the loan has been sold or service transferred prior to resolving the litigation. Logistically, how can the prior lender add fees to a note they no longer own or service and, even if they could, how would one collect them? It can be done, but will require lots of calls to the new lender or servicer.

  5.  Can a servicer recover fees under the DOT: California law is mixed on whether a servicer can recover fees under the DOT. Fortunately, most decisions and courts side with the servicer. While the Hart and Chacker decisions focused on the successor to the lender’s right to recover fees, the rulings will apply similarly to a servicer. Indeed, implicit under Chacker was its acceptance that Chase, even as a non-party was entitled, as an agent of the owner, to be paid its fees—it just was limited to doing so by adding them to the loan balance. Likewise, the servicer will have the same challenges if actually collecting fees if the servicing of the loan has already transferred to a new servicer.

  6. Can the foreclosure trustee recover its litigation defense fees: Whether a foreclosing trustee named in borrower litigation can recover its litigation defenses fees and costs is a complicated question. Regardless of the recent decisions discussed above, most standard form DOTs do not contain language specifically allowing the trustee to obtain a fee award or, add them directly to the loan. It will generally require non- standard language specifically providing that the trustee can recover fees. (Note – the Court did confirm fees for the trustee in the Chacker case; however, it appears to have done so without much thought and perhaps was an oversight.)

  7. Can the borrower still recover fees: Unfortunately, yes. While it might seem inequitable, the reciprocal language of Civil Code section 1717 still gives the prevailing borrower the ability to recover a fee award, even if the prevailing lender or servicer is limited to adding the fees to the loan.

  8. Do you even need to move for fees or can you add them directly to your DOT: Even before these decisions, servicers and lenders often asked our firm if they could simply add the attorney’s fees and costs directly to the loan, like they do with advances for taxes, inspection fees, bankruptcy fees, non-judicial foreclosure fees, etc. The answer was almost uniformly – no. Although the DOT language cited above appears to provide that the attorney’s fees in defensive litigation with the borrower can be added directly to the loan, Civil Code section 1717 provides that only the prevailing party is entitled to fees (and the fees must be reasonable). Therefore, until the lender wins and is awarded “reasonable” fees, the lender cannot simply add them directly to the loan. However, the Hart and Chacker decisions appear to bring into question the traditional approach. Both decisions repeatedly point to the language in the DOT that the fees can be added directly to the loan. In fact, the Court in Hart vacated the fee award completely, holding that Nationstar was essentially free to apply the fees directly to the loan. “[Paragraph 9] is, instead, a provision that attorney’s fees, like any other expenses the lender may incur to protect its interest, will be added to the secured debt.” However, there are other issues at play and we strongly recommend consulting with our office or another attorney before adding any litigation-related fees directly to your DOT.

  9. Updating the attorney fee language in your DOT: While it might be difficult for institutional lenders, private and conventional lenders can revise the language in their DOTs to clearly state that the lender is entitled to add the fees to the loan or, at its sole discretion, obtain an attorney fee award. Again, please consult your attorney before revising the provisions in your DOT.

  10. Why do I even care, the borrower is already in default: In most instances where the borrower sues its lender, the loan is in default. If the borrower cannot afford to make his or her mortgage payments, he or she often cannot reimburse a lender for its litigation fees and costs? For the last decade or so, it did not make much sense for a lender to incur the expense of moving for fees; but, with property values in California at or above all-time peaks, many litigious borrowers have equity in their homes. If they chose to sue and are unsuccessful, the prevailing lender may want to consider trying to recover its defense costs from the equity in the property. In addition, with borrowers who are serial litigants, the threat of having to pay fees when they lose might help dissuade them.

As you can see, while the Court’s recent decisions seem clear cut, they raise a plethora of issues for a lender, servicer and trustee to consider when moving for fees. We recommend analyzing your DOT at the outset of any litigation to determine whether you can ultimately recover your attorney’s should you ultimately prevail. Even if you never end up filing the fee motion, knowing your options is useful when negotiating with the other side or at a mediation.

1 Chacker v. JPMorgan Chase Bank, N.A., (Cal. Ct. App., Sept. 19, 2018, No. B281874) 2018 WL 4474732; Hart v. Clear Recon Corp., (Cal. Ct. App., Sept. 18, 2018, No. B283221) 2018 WL 4443242
2 Bailey v. United States (2013) 568 U.S. 186, 206 (concurring opinion of Scalia, J.)

Disclaimer:  The above information is intended for informational purposes alone and is not intended as legal advise.

California Land Title Association

1215 K Street #1816 Sacramento, CA 95814-3905
Email:  |  Phone: 916-444-2647  |   Fax: 916-444-2851