Suspended before the Notice of Default. Is the foreclosure void?
California's Franchise Tax Board suspended this lender's company ten months before it recorded the Notice of Default. The borrower is using that gap to void the foreclosure and stop the sale.
This week's case: a seller-financed land loan, a lender the state had stripped of its corporate powers ten months before it recorded, and a wrongful-foreclosure suit that turns on whether a suspended company can foreclose at all.
Sandhu v. 1499 Country Club Drive, LLC, et al.
Court: Santa Clara County Superior Court
Filed: May 29, 2026, at the Notice of Default stage, before any sale date was set.
Causes of Action: Wrongful foreclosure, cancellation of instruments, negligent servicing, quiet title, and declaratory relief.
The borrower bought vacant land in Milpitas, Santa Clara County, California, to build a family home. The seller carried back most of the purchase price and holds the deed of trust, so the seller and the lender are the same party. After closing, the borrower says the utilities the marketing promised, water, power, and sewer, were never installed, and that he had to cover engineering and consulting costs out of pocket to get the lot development-ready. He says those costs are what pushed him behind on the note, and he is now in JAMS arbitration with the seller over the original misrepresentation.
Per the recorded Notice of Default, the borrower owed the full unpaid principal balance at loan maturity and had missed every installment since September 1, 2023, for a total of $1,380,020.15 as of April 1, 2026. The foreclosure trustee recorded the Notice of Default on April 3, 2026.
Then the borrower found the opening. Per a Secretary of State certificate attached to the complaint, the Franchise Tax Board had suspended the lender’s corporate powers as of June 2, 2025, ten months before the Notice of Default was recorded. The borrower contends a suspended company cannot exercise its corporate powers, that recording a foreclosure is one of them, and that the Notice of Default is void. He also alleges the foreclosure is a move to extinguish the carried-back note before a pending arbitration over the land’s condition is decided. He seeks to cancel the Notice of Default, quiet title, and stop the sale.
The borrower’s argument sounds airtight. It isn’t, quite, and the gap is where the real lesson for lenders lives.
🔒 Paid below: the takeaway and three lessons for lenders.
