By Glen Hansen
Ram v. OneWest Bank, FSB (2015) 234 Cal.App.4th 1.
In Ram v. OneWest Bank, FSB (2015) 234 Cal.App.4th 1, the Court of Appeal for the First Appellate District held that a nonjudicial sale of a residence was not void due to irregularities in the foreclosure proceedings, where the party executing and recording the notice of default as the “trustee” had not yet been substituted as the trustee by the lender’s assignee.
In 2005, Bhika Ram and his spouse, Asharfun Nisha Hafiz, purchased a home subject to a deed of trust that listed listing the lender and beneficiary as First Federal Bank of California (“First Federal”) and the trustee as Seaside Financial Corporation. Thereafter, First Federal was ordered closed by the federal government, and eventually the loan was assigned to OneWest Bank, FSB (“OneWest”) and a deed of trust confirming that assignment was recorded in 2010. Ram and Hafiz defaulted on their home loan. On September 7, 2010, a notice of default was executed and recorded. The notice of default was signed by LSI Title Company “[a]s [a]gent” of Aztec Foreclosure Corporation (“Aztec”) as “[a]s [t]rustee.” OneWest did not formally execute a substitution naming Aztec as the trustee until September 24, 2010, several weeks after it was identified as trustee on the notice of default. This substitution was recorded on December 9, 2010, the same day that Aztec recorded a notice of trustee’s sale. The foreclosure sale was postponed until April 18, 2011, and then again postponed until June 6, 2011, when the property was finally sold to OneWest for an amount far less than what was then owed by Ram and Hafiz on the loan. Thus, OneWest was an assignee of the mortgage loan, and not the original lender or a substituted trustee.
Ram and Hafiz filed an action against OneWest, Aztec and First Federal, alleging that the sale was void due to irregularities in the foreclosure proceedings. Ram and Hafiz alleged causes of action 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. Ram and Hafiz alleged that the foreclosure sale was void because Aztec had not been substituted as trustee at the time it recorded the notice of default and therefore it lacked the authority to initiate the foreclosure proceedings. OneWest filed a demurrer, which was sustained by the trial court with leave to amend some claims. Ram and Hafiz did not amend their complaint, and so the trial court dismissed the case against OneWest. On appeal, Ram and Hafiz challenge this dismissal, principally claiming that the foreclosure sale was void because the predicate notice of default was executed and recorded by an entity claiming to be the trustee of OneWest several weeks before OneWest signed and recorded documents formally designating that entity as such. The Court of Appeal for the First Appellate District affirmed the dismissal.
On appeal, Ram and Hafiz argued that the sale was “void” because Aztec 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 OneWest executed a substitution of trustee naming Aztec as the trustee. The Court of Appeal rejected that argument for two reasons. First, there was no defect or omission in the default and foreclosure process because the statutes contemplate that an entity may be substituted as trustee even where substitution is not “recorded” or “effected” until after the notice of default is recorded, so long as notice is given to the trustor/borrowers. (Civ. Code, §2934a, subds. (b), (c).) Since OneWest complied with the procedure authorized by the Legislature, the supposed defect of which Ram and Hafiz complain cannot form the basis for rendering the ensuing trustee’s sale not just voidable, but absolutely void. Second, Ram and Hafiz’ argument failed because they argued that Aztec was acting as the agent of OneWest (Civ. Code §§2924, subd. (a)(1).); 2924b, subd. (b)), and even if Aztec lacked authority to sign the notice of default 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. Thus, once OneWest executed a substitution of trustee, naming Aztec as the trustee of the deed of trust in September 2010, it had the effect of immediately transferring to Aztec the power to act as trustee under the foreclosing deed of trust, even though the substitution of trustee was not recorded until December 2010, and the trustee’s sale did not take place until June 2011.
Because the subsequent sale was at most voidable, and not void, Ram and Hafiz could not avoid the applicable law requiring tender of the amount due under the deed of trust and requiring facts showing prejudice from the alleged irregularity in the notice of default. However, Ram and Hafiz did not allege that they tendered, or were ready, willing, and able to tender, the amount owed on the loan at any time between the time of the notice of default was recorded in early September and the foreclosure and sale that took place nine months later on June 6, 2011. Without such allegations, the court properly sustained the demurrer to their claim for wrongful foreclosure, and dismissed the action against OneWest.
Glen Hansen is a Senior Counsel at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.