Opinion
A130058
08-11-2011
INGRID D. ROBINSON, Plaintiff and Appellant, v. ONEWEST BANK, FSB, et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Marin County Super. Ct. No. CIV 092432)
Plaintiff Ingrid D. Robinson sued OneWest Bank, FSB (OneWest), Mortgage Electronic Registration Systems, Inc. (MERS), and two other entities after she defaulted on a secured real estate loan and lost the property to foreclosure. The trial court sustained a demurrer without leave to amend to her third amended complaint. Plaintiff contends she should have been granted leave to amend the complaint to allege a claim for wrongful foreclosure on the ground the entities that initiated the foreclosure lacked legal authority to do so. Finding no reasonable possibility plaintiff could prevail on such a claim, we affirm the trial court's denial of leave to amend.
I. BACKGROUND
On June 3, 2010, plaintiff filed her verified third amended complaint (complaint) against OneWest, MERS, and two other defendants. The complaint alleged that in 2005 plaintiff borrowed money from Residential Mortgage Capital, the debt secured by a deed of trust on her real property (property). The trustee was Cal Land Title of Marin, and MERS was identified as the "nominee" of the lender and beneficiary in the deed of trust. At some point, plaintiff had difficulty making payments on the loan. When she attempted to discuss the situation with her lender, she was directed to defendant IndyMac Bancorp (IndyMac), the predecessor in interest to OneWest. Although plaintiff was referred to IndyMac as early as August 2008, it was not until December 2008 that MERS executed an assignment of the deed of trust on the property to IndyMac. On the same day, the defendants served a notice of default, although they were alleged not to have had the legal right to exercise the power of foreclosure. The complaint asserted 10 causes of action, including wrongful foreclosure, fraud, and quiet title.
The two other defendants appear to have been dismissed from the action and do not figure in this appeal.
OneWest and MERS demurred to the complaint, raising a variety of arguments. The demurrer was supported by a request for judicial notice of a series of publicly recorded documents relating to the property. The documents demonstrated that a deed of trust on the property, securing a debt of $1 million, was recorded in June 2005. The deed of trust contained a paragraph stating: " 'MERS' is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns. MERS is the beneficiary under this Security Instrument." On December 22, 2008, Quality Loan Service Corporation (Quality), purporting to act "AS AGENT FOR BENEFICIARY," executed a "NOTICE OF DEFAULT AND ELECTION TO SELL UNDER DEED OF TRUST," which was recorded the following day, December 23. At the time Quality executed and recorded the notice of default, there was no indication in the public record it had authority to act with respect to the property, judging from the documents submitted by OneWest and MERS. This changed on February 4, 2009, when IndyMac, purporting to act as the "present Beneficiary under [the] Deed of Trust," recorded a substitution of trustee designating Quality as the new trustee. The substitution of trustee was dated December 22, 2008, but it was not executed until January 13, 2009. At the time IndyMac executed the substitution of trustee in January, there was similarly no indication in the public record that it had authority to act with respect to the property. This was corrected when an assignment of deed of trust, which transferred the deed of trust and the note from MERS to IndyMac, was recorded on February 11. Although executed on January 29, 2009, the assignment contained a line stating, "Effective Date: 12/22/2008 10:16 AM," the same date as the execution of the notice of default. Quality subsequently recorded notices of trustee's sale on March 27 and July 6, 2009. A trustee's deed reflecting a sale was recorded July 29.
The trial court granted the request for judicial notice and sustained the demurrer without leave to amend as to all causes of action.
II. DISCUSSION
Plaintiff does not defend the causes of action to which the demurrer was sustained. Instead, she contends the trial court abused its discretion in denying leave to amend, arguing she should have been allowed to add a claim that the foreclosure was invalid because IndyMac's authority to initiate foreclosure proceedings was based on a "backdated" assignment of deed of trust. Plaintiff contends the various recorded documents demonstrate that IndyMac substituted Quality as trustee before it had the authority to do so and Quality recorded the notice of default before it had authority to do so, since the documents conveying authority to each party were not executed and recorded until after they had taken these steps. As a result, plaintiff argues, their actions were invalid and the foreclosure sale is void.
At oral argument, plaintiff contended for the first time the trial court erred in taking judicial notice of the recorded documents. Although plaintiff did object to the taking of judicial notice below, she did not raise the issue in her opening brief on appeal (or even her reply brief). We therefore find the issue waived. (E.g., Chicago Title Ins. Co. v. AMZ Ins. Services, Inc. (2010) 188 Cal.App.4th 401, 427-428.) Further, the only arguments made by plaintiff for her ability to amend to assert a viable cause of action depend directly on the judicially noticed documents. Plaintiff therefore appears to have conceded the validity of the court's action.
Whether to grant leave to amend under Code of Civil Procedure section 472a is entrusted to the sound discretion of the trial court, and we review the trial court's decision for abuse of discretion. (CAMSI IV v. Hunter Technology Corp. (1991) 230 Cal.App.3d 1525, 1538.) In deciding whether the trial court abused its discretion in denying leave to amend, "we must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment. [Citation.] If we find that an amendment could cure the defect, we conclude that the trial court abused its discretion and we reverse; if not, no abuse of discretion has occurred. [Citation.] The plaintiff has the burden of proving that an amendment would cure the defect." (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
Defendants argue plaintiff should not be permitted to raise this argument because she failed to articulate the legal theory to the trial court. While we find adequate expression of the theory in plaintiff's pleadings below, that is unnecessary. "A showing that the complaint can be amended to state a cause of action 'need not be made in the trial court so long as it is made to the reviewing court.' " (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1041-1042.)
While we find no procedural bar to plaintiff's raising this argument, the merits of her proposed cause of action are resolved against her by Ferguson v. Avelo Mortgage, LLC (2011) 195 Cal.App.4th 1618 (Ferguson), the facts of which are quite similar to those presented here. The plaintiffs in Ferguson were tenants in a home that had been sold at a nonjudicial foreclosure sale. Originally, MERS was designated as a nominee and beneficiary in the deed of trust. On August 3, Quality recorded a notice of default, although there was no indication in the public record of Quality's authority to act with respect to the property at the time. The defendant, Avelo Mortgage, LLC (Avelo), had executed a substitution of trustee designating Quality as trustee the prior day, August 2, but the substitution was not recorded until many months later, on November 9. Further, at the time Avelo executed the substitution of trustee, there was similarly no indication in the public record of its authority to act. MERS did not assign its interest under the deed of trust to Avelo until August 22, several weeks later. Notice of the trustee's sale was delivered on November 4 and recorded on November 9, the same day the substitution of trustee was recorded. The trustee's sale occurred in July of the following year. (Id. at p. 1621.)
Although Ferguson was filed on June 1, 2011, after the close of briefing in this appeal, we provided both parties an opportunity to address the decision in supplemental letter briefs.
Addressing the plaintiffs' claim the sale was invalid because the foreclosing parties did not have authority to proceed, essentially the same argument raised by plaintiff here, the court agreed with the plaintiffs that the notice of default was defective because Avelo lacked legal authority to execute a substitution of trustee until it had been assigned MERS's interest under the deed of trust. (Ferguson, supra, 195 Cal.App.4th at p. 1628.) The court declined to invalidate the foreclosure sale, however, because Quality was eventually given the appropriate authority and the irregularities occurred long before the sale was concluded: "We agree with appellants that respondent did not have the authority to execute a substitution of trustee until MERS assigned the deed of trust to it. Thus, Quality's August 3, 2007 notice of default was defective. Nonetheless, [the borrower] had more than three months to satisfy his obligation before Quality executed a notice of sale. The substitution of trustee was effective when respondent became the beneficiary under the deed of trust and when the substitution was recorded on November 9, 2007. [Citation.] Thus, the notice of sale was valid. Quality then completed the foreclosure in July 2008, long after its substitution as trustee took effect. This situation is distinct from other cases that have voided a nonjudicial foreclosure sale when a party other than the trustee initiated the proceeding and completed the sale without having been substituted in as the trustee. [Citations.] Appellants offer no authority for the proposition that the defective nature of the initial notice of default corrupted all subsequent steps in the nonjudicial foreclosure proceeding such that the sale was void, not merely voidable." (Ibid., fn. omitted.)
The circumstances here were not materially different. As in Ferguson, the notice of default was filed by a party that apparently lacked authority to do so. By the time Quality recorded the first notice of trustee's sale on March 27, however, the appropriate documents to vest it with authority to act had long since been executed and recorded. Plaintiff had the requisite statutory time to cure her default, and the foreclosure sale did not occur until several months later. Under Ferguson, the initial defects in the proceeding did not affect the validity of subsequent steps, once the defects had been cured. Accordingly, plaintiff failed to demonstrate a "reasonable possibility" that she could amend the complaint to state a valid cause of action. The trial court did not abuse its discretion in sustaining the demurrer without leave to amend.
Plaintiff argues, without citation to relevant authority, that Ferguson was wrongly decided because the substitution, being void ab initio, could not be validated by later conduct of the parties. There are at least two grounds for rejecting this argument. First, the recorded documents on which plaintiff relies are not conclusive in determining the authority of the parties to act with respect to the foreclosure. A notice of default, initiating foreclosure, may be filed by a trustee, beneficiary, "or any of their authorized agents." (Civ. Code, § 2924, subd. (a)(1).) Even if Quality was not authorized to act as trustee when it executed the notice of default, since the substitution of trustee had not yet been executed, Quality could have been authorized to execute the notice of default in the role of agent of the trustee or the beneficiary. This is, in fact, the role in which Quality purported to act when executing the notice. Such an agency could readily have been created by an unrecorded document. Similarly, although the formal assignment of the deed of trust had not been executed and recorded at the time IndyMac purported to substitute Quality as trustee, IndyMac could have been assigned plaintiff's note in an
The only appellate cases cited by plaintiff in support of her cause of action are Pro Value Properties, Inc. v. Quality Loan Service, Corp. (2009) 170 Cal.App.4th 579 and Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868, both of which concern the conduct of a trustee's sale by an unauthorized party, in violation of Civil Code section 2934a. Since there is no dispute Quality was substituted as trustee months before the trustee's sale, the two cases are inapposite. We have reviewed the nonpublished federal district court cases cited by plaintiff and find them unpersuasive. (Ohlendorf v. American Home Mortgage Servicing (E.D.Cal. Mar. 31, 2010, No. CIV. S-09-2081 LKK/EFB) 2010 U.S. Dist. Lexis 31098; Castillo v. Skoba (S.D.Cal. Oct. 8, 2010, No. 10cv1838 BTM) 2010 U.S. Dist. Lexis 108432.)
In finding the notice of default defective in Ferguson, the court appears not to have considered the possibility that Quality was authorized to act as agent, rather than trustee. As here, Quality executed the notice of default in Ferguson "as an agent of the beneficiary under the deed of trust." (Ferguson, supra, 195 Cal.App.4th at p. 1621.)
unrecorded document prior to its execution of the substitution. Plaintiff's allegation that she was directed to IndyMac to discuss her loan in August 2008 is consistent with such an assignment. Because the security for a debt is "a mere incident of the debt or obligation which it is given to secure" (Hayward Lbr. & Inv. Co. v. Naslund (1932) 125 Cal.App. 34, 39), assignment of a debt instrument automatically carries with it the security. (13 Thompson on Real Property (2d ed. 1998) § 104.01(a), p. 99; Seidell v. Tuxedo Land Co. (1932) 216 Cal. 165, 170 [assignment of note secured by deed of trust carries with it the deed of trust].) An unrecorded assignment would therefore have provided IndyMac with the authority to substitute Quality as trustee.
It was plaintiff's burden to plead facts demonstrating a lack of authority by Quality and IndyMac. A nonjudicial foreclosure sale is presumed to have been conducted regularly, and the burden of proof rests with the party attempting to rebut this presumption. (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1258 ["It is the burden of the party challenging the trustee's sale to prove such irregularity and thereby overcome the presumption of the sale's regularity"]; Knapp v. Doherty (2004) 123 Cal.App.4th 76, 86, fn. 4; Wolfe v. Lipsy (1985) 163 Cal.App.3d 633, 639, disapproved on other grounds in Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 36; see also Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1155-1156.) If plaintiff sought to amend to plead a claim based on the alleged lack of authority in Quality and IndyMac to initiate foreclosure, plaintiff was required to allege that neither had received authorization through recorded or unrecorded documents. It was not enough for plaintiff to rely on the public record as a basis for her claim, since, for the reasons discussed above, the publicly recorded documents are not conclusive in demonstrating lack of authority. The record contains no suggestion plaintiff had evidence of such a lack of authority.
In the reply brief, plaintiff concedes her current claim is evident "on the face of" the recorded documents.
Second, the recorded documents indicate that, even if Quality and IndyMac lacked authority to initiate foreclosure or execute a substitution of trustee at the time they took these actions, these acts were subsequently ratified by parties having such authority. " 'Ratification is the voluntary election by a person to adopt in some manner as his own an act which was purportedly done on his behalf by another person, the effect of which, as to some or all persons, is to treat the act as if originally authorized by him. [Citations.]' " (Estate of Stephens (2002) 28 Cal.4th 665, 673.) The effect of ratification is to vest the agent with authority that relates back to the time when the agent performed the act. (White v. Moriarty (1993) 15 Cal.App.4th 1290, 1295.) Ratification may occur by express adoption or by implication from "conduct of the purported principal from which an intention to consent to or adopt the act may be fairly inferred, including conduct which is 'inconsistent with any reasonable intention on his part, other than that he intended approving and adopting it.' " (Rakestraw v. Rodrigues (1972) 8 Cal.3d 67, 73.) Ratification can therefore be proved by " 'circumstantial as well as direct evidence. Anything which convincingly shows the intention of the principal to adopt or approve the act in question is sufficient.' " (StreetScenes v. ITC Entertainment Group, Inc. (2002) 103 Cal.App.4th 233, 242.)
IndyMac's substitution of trustee designating Quality and MERS's assignment of the deed of trust to IndyMac, both dated as of the date Quality executed the notice of default, unmistakably evidence an intent by the parties to ratify the initiation of foreclosure by Quality. There is no other conclusion to be drawn from the precise backdating of both documents, which indicates an awareness and approval of Quality's conduct. Any unauthorized act by Quality or IndyMac was therefore ratified by MERS, which had authority to ratify as beneficiary under the deed of trust.
In order to avoid the effect of the ratification, plaintiff, as a third party, was required to prove she was prejudiced by the unauthorized acts. (Civ. Code, § 2313; Archdale v. American Internat. Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449, 480.) Plaintiff argues she was prejudiced because she lost equity in her home as a result of the foreclosure sale. The foreclosure sale, however, was not a consequence of the unauthorized nature of the acts but of her own conduct. There appears to be no question she was in default at the time the notice of default was sent and did not subsequently cure the default, thereby justifying foreclosure. In order to show prejudice from the unauthorized acts, plaintiff was required to demonstrate that, in the absence of the unauthorized acts, the foreclosure sale would not have occurred or would have had a different result. (E.g., Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1097-1098 [collusion resulted in inadequate sale price].) Given her default and the long lapse between the unauthorized acts and the trustee's sale, there is no reason to believe plaintiff suffered such prejudice, and she has pleaded none.
Because we find no error in the trial court's denial of leave to amend on this ground, we need not address defendants' contention plaintiff failed to state a cause of action because she did not allege tender of the amount owing under the promissory note.
III. DISPOSITION
The judgment of the trial court is affirmed.
Margulies, J.
We concur:
Marchiano, P.J.
Banke, J.