Source: https://www.stoel.com/compliance-with-california-foreclosure-recording-law-what-level-of-defect-in-foreclosure-recordings-void-a-foreclosure-sale
Timestamp: 2019-04-20 07:13:14+00:00

Document:
Compliance with California Foreclosure Recording Law: What Level of "Defect" in Foreclosure Recordings "Void" a Foreclosure Sale?
Although California courts have generally pored over the issue of whether specified “defects” in foreclosure initiating recordings (i.e., notices of default (“NOD”)) should go so far as to invalidate a sale, last week the California First District Court of Appeal examined a related issue of apparent first impression. The specific issue was whether a foreclosing initiating instrument was void (and the resulting sale invalidated) where the entity that recorded the NOD claimed to be the authorized “trustee” for recording, but its role as trustee was not recorded for months after it recorded the NOD.
In June 2011, OneWest Bank (“OneWest”), the beneficiary under a deed of trust, proceeded with a non-judicial foreclosure pursuant to California Civil Code section 2924 et seq. The initiating NOD was executed and recorded by Aztec Foreclosure Corporation (“Aztec”), “as trustee.” Aztec was designated in the NOD as OneWest’s point of contact regarding the NOD. OneWest, however, did not execute a substitution of trustee (“SOT”) naming Aztec as the new trustee for weeks after the NOD was recorded. Moreover, the SOT was not publically recorded for over two months after its execution.
[S]everal statutory provisions contemplate that an entity may be substituted as trustee even where substitution is not ‘recorded’ or ‘effected’ until after the [NOD] is recorded, so long as notice is given to the trustor/borrowers.” This substitution was “effected” after the NOD, with notice to the borrower. And alternative grounds supporting the validity of the foreclosure were noted.
Aztec “was acting as the agent of OneWest,” the beneficiary. “Because it is presumed the nonjudicial foreclosure was properly conducted,” borrowers must affirmatively show that the disputed trustee is not only not the trustee, but was not the agent of the beneficiary at the time. Regardless of what someone may plead, “the recorded documents in this case indicate that even if Aztec lacked authority to sign the [NOD] as trustee at the time it took this action, Aztec’s authority was subsequently ratified by OneWest when it formally named Aztec as trustee several weeks later.” “In order to avoid the effect of this ratification, [the borrowers] as third parties, would be required to prove they were prejudiced by Aztec’s unauthorized actions.” And borrowers in undeniable default, with notice of a sale as a result of the default, are not prejudiced by the beneficiary’s agreement to have its agent or the trustee proceed with foreclosure. The alleged injury was tethered to the non-payment of the mortgage.
In conclusion, the Court offered pragmatic guidance on what types of issues constitute defects of the type that “void” an NOD: defects substantial enough that borrowers need not demonstrate their ability to tender their unpaid debt or show they were prejudiced by the “defect, omission, or failure, before the sale will be set aside.” Courts, and notably the First District Court of Appeal, “focus on the nature and severity of the defect” and “its practical effect on the foreclosure process.” As we wade through the remnants of the foreclosure crisis, we are affirmed in the knowledge that in California, it should take more than an argument that “statutory requirements were not ‘strictly complied with’” to invalidate a sale everyone knew was coming, for reasons not associated with any fault of the beneficiary, trustee or mortgage loan servicer.
 Cal. Civ. Code §§ 2924 – 2924k.
 Various purported “defects” in foreclosure initiating documents have been deemed to not void foreclosure sales. See Debrunner v. Deutsche Bank Nat’l Trust Co., 204 Cal. App. 4th 433, 443 (2012) (rejecting a claim that an NOD recorded by a trustee several months before the trustee’s substitution did not invalidate a sale; see also Knapp v. Doherty, 123 Cal. App. 4th 76, 97-98 (2004) (finding an incorrect NOD default amount to not invalidate a foreclosure under the NOD).
 Ram v. OneWest Bank, FSB, No. A139055 (Cal. Ct. App. Feb. 6, 2015).
 Ram, slip op. at 3.
 Id. at 10. “Section 2924 authorizes a notice of default to be recorded by ‘the trustee, mortgagee, or beneficiary, or any of their authorized agents.’ (§ 2924, subd. (a)(1).)” Id. (emphasis in original).
 Id. at 12 (citing Cal. Civ. Code § 2313; Archdale v. American Int’l Specialty Lines Ins. Co., 154 Cal. App. 4th 449, 480 (2007)).
 Cal. Civ. Code § 2934a(c).
 Ram, slip op. at 13-14 (emphasis in original) (quoting Cal. Civ. Code § 2934a(d)).
 Id. at 14 (brackets in original) (quoting Pullen v. Heyman Bros., 71 Cal. App. 2d 444, 452 (1945)).

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