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California Court Rules ‘If Any’ Wording Sinks Notice of Default

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Home Perspectives California Court Rules ‘If Any’ Wording Sinks Notice of Default

Creating a notice of default that passes muster under California law just got a little bit tougher.

In Anolik v. EMC Mortgage Corp., No. C044201 (Cal.App.4th, April 19, 2005), the California appellate court held that the addition of the words “if any” in a notice of default when referring to the fact of default violates the legal requirement that a creditor identify “actually known” breaches, and invalidates the entire notice.

EMC sought a nonjudicial foreclosure of a deed of trust securing the indebtedness of Jerry Anolik for the purchase of his home. When Anolik defaulted on his payment obligations, EMC delivered a notice of default that provided:

“A breach of, and default in, the obligations for which [the] Deed of Trust is security has occurred in that payment has not been made of: THE INSTALLMENT OF PRINCIPAL AND INTEREST WHICH BECAME DUE ON 3/01/2000 AND ALL SUBSEQUENT INSTALLMENTS, TOGETHER WITH LATE CHARGES AS SET FORTH IN SAID NOTE AND DEED OF TRUST, ADVANCES, ASSESSMENTS AND ATTORNEY’S FEES, IF ANY.”

Before a foreclosure sale could take place, Anolik sued for injunctive relief to prevent EMC from selling his home and for a declaration that the notice of default was invalid and void because it did not contain an affirmative statement that there had been an actual breach of an obligation secured by the deed of trust. The lower court ruled against Anolik and awarded EMC more than $83,000 in attorneys’ fees.

The California appellate court reversed the trial court and the award. In addressing the validity of the notice, the appellate court reviewed several key statutes and held that:

“To be valid, a notice of default must contain at least one correct statement of a breach of an obligation the deed of trust secures…. Moreover, the breach described in the notice of default must be substantial enough to authorize the use of the drastic remedy of nonjudicial foreclosure.” 

The Court further observed that the purpose of requiring a notice of default to identify the breach that has occurred “is to put the beneficiary to the task of ascertaining the existence of a breach before the invocation of the power of sale. An assertion of a breach ‘if any’ utterly fails those purposes.” The Court went on to state that in order for a valid notice of default to be sufficient under California law, drafters must state at least one accurate instance of breach.

Following this decision, drafters may want to list or summarize all of the known breaches as of the date the notice of default is prepared, and add a separate statement to the effect that additional fees accrued after the notice of default may result in additional breaches of the underlying transaction documents.