Source: http://updates.mwbllp.com/2015/02/fyi-cal-app-ct-rejects-challenges-to.html
Timestamp: 2019-04-25 21:57:51+00:00

Document:
The California Court of Appeal, First District, recently affirmed a trial court’s dismissal of allegations that a notice of default was void. The Appellate Court rejected the borrowers’ argument that a notice of default is void when executed by a successor trustee prior to that successor trustee having been substituted in as trustee under the deed of trust.
The Appellate Court also rejected the borrowers’ contention that the recorded substitution of trustee was void because it did not include an affidavit of mailing showing it was mailed to the trustee of record or other persons, if any, who may have requested notice of default and notice of sale, explaining that parties to a deed of trust may agree to a form of substitution of trustee other than that provided in Calif. Civil Code section 2934a.
In 2005, the borrowers obtained a loan for $396,200 to purchase a home. The borrowers executed and recorded a deed of trust in favor of the lender as the beneficiary. The loan and deed of trust were subsequently assigned to another entity (“Bank”).
On September 7, 2010, the successor trustee executed and recorded a notice of default against the property. However, the Bank did not execute a substitution of trustee appointing the successor trustee as the trustee under the deed of trust until September 24, 2010. And, the substitution of trustee was not recorded until December 9, 2010, the same day that the successor trustee recorded a notice of sale.
On June 6, 2011, the property was sold to the Bank for an amount far less than what was then owed by the borrowers on the loan.
The borrowers filed a complaint to set aside the foreclosure sale. The borrowers attempted to assert claims for wrongful foreclosure, intentional and negligent fraud, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, negligence, unfair business practices, cancellation of deed upon sale, quiet title, declaratory relief, wrongful eviction, willful lockout, and injunctive relief.
The borrowers argued that the foreclosure sale was void because the successor trustee had not been substituted in as trustee at the time it recorded the notice of default and therefore it lacked the authority to initiate the foreclosure proceedings.
However, the borrowers did not allege that they had tendered, or were ready, willing, and able to tender, the amount owed on the loan at any time between the time the notice of default was recorded in early September and the foreclosure and sale that took place nine months later on June 6, 2011.
As you may recall, the “traditional method” to challenge a nonjudicial foreclosure sale in California “is a suit in equity . . . to have the sale set aside and to have the title restored.” Lona v. Citibank, N.A., 202 Cal.App.4th 89, 103 (2011). Generally, the party contesting the foreclosure must prove: “(1) the trustee . . . caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a . . . deed of trust; (2) the party attacking the sale suffered prejudice or harm; and (3) the trustor . . . tenders the amount of the secured indebtedness or was excused from tendering.” West v. JPMorgan Chase Bank, N.A., 214 Cal.App.4th 780, 800 (2013).
The Appellate Court affirmed the trial court’s order of dismissal, and rejected the borrowers’ argument that the sale was void because the successor trustee did not yet hold the title of “trustee” as claimed on the notice of default, and was only formally named as trustee several weeks later, when the Bank executed a substitution of trustee naming the successor trustee as the trustee.
The Appellate Court first noted that a substitution of attorney may occur after a notice of default is recorded, but before a notice of sale is recorded. See Calif. Civil Code § 2934a(c). The Court found that the Bank complied with this procedure as authorized by the Legislature. Accordingly, the Appellate Court determined that the ensuing trustee’s sale not either voidable or void.
The Appellate Court also determined that the successor trustee had the authority to execute the notice of default as the Banks’s agent. The Court noted that Section 2924 authorizes a notice of default to be recorded by “the trustee, mortgagee, or beneficiary, or any of their authorized agents.” The Court noted that nothing in the borrowers’ pleadings or judicially noticed documents suggests that the successor trustee was not authorized to act for the Bank, the beneficiary under the deed of trust. See Calif. Civil Code § 2924(a)(1).
The Court held that the successor trustee’s substitution as trustee, which was executed within weeks of the successor trustee’s issuing the notice of default, “unmistakably evidences” an intent by the Bank to ratify the successor trustee’s authority to initiate the foreclosure proceedings.
Therefore, in order to avoid the effect of this ratification, the borrowers, as third parties, would be required to prove they were prejudiced by the successor trustee’s unauthorized actions. See Calif. Civil Code § 2313; Archdale v. American Internat. Specialty Lines Ins. Co., 154 Cal.App.4th 449, 480 (2007). The Appellate Court noted that the borrowers had not alleged they suffered any prejudice.
The Appellate Court also rejected the borrowers’ argument that the recorded substitution of trustee, which is a single-page document, did not include an affidavit of mailing showing it was mailed to the trustee of record or other persons, if any, who may have requested notice of default and notice of sale under section 2924b.
According to the borrowers, this failure to include an affidavit of mailing supposedly constituted a clear violation of section 2934a, subdivision (c), which supposedly invalidates the substitution of trustee.
Finally, the Appellate Court held that the foreclosure sale was, at worst, voidable, not void. The Court noted that the primary purpose of a notice of default is to provide notice of the amount in arrears and an opportunity to cure the default. Therefore, in order for a defect in the notice of default to be material, it must cause prejudice. Knapp v. Doherty, 23 Cal.App.4th 76, 99 (2004).
Accordingly, the Appellate Court affirmed the order of dismissal because the borrowers had not alleged that they were misled or prejudiced by the notice of default or that the information stated in the notice of default was erroneous.

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