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Calif. App. Court (5th Dist) Reverses Quiet Title Judgment Against Foreclosing Mortgagee

quiet titleThe California Court of Appeals for the Fifth Appellate District recently reversed a trial court’s ruling under the California Code of Civil Procedure section 473 to set aside a default and a judgment quieting title against a mortgagee that had foreclosed and acquired title to the subject property.

However, in so ruling, the Fifth District also held that the judgment quieting title against the mortgagee was erroneous as a matter of law.

A copy of the opinion in Bailey v. Citibank, N.A. is available at:  Link to Opinion.

Two occupants of residential real estate petitioned to quiet title based on their alleged adverse possession of the property for a five-year period. Before that period was completed, a mortgagee, as successor in interest of a deed of trust recorded against the property long before the plaintiffs’ alleged adverse possession began, foreclosed and acquired title to the property.

The mortgagee failed to answer or otherwise respond to the plaintiffs’ complaint, and default was entered, and the trial court ultimately entered a judgment quieting title in the plaintiffs’ favor.

The mortgagee moved to set aside both the default and the judgment under the mandatory provisions of the California Code of Civil Procedure section 473, based on the mortgagee’s attorney’s affidavit of fault. The trial court granted the mortgagee’s motion, and the default and judgment quieting title were set aside.

The plaintiffs appealed that order on the ground that no basis existed for potential relief under section 473 because the mortgagee’s attorney was not retained to handle the case until after the default was entered. In response, the mortgagee filed a protective cross-appeal, arguing that even if relief under section 473 was unavailable, the judgment quieting title in the petitioners’ favor was erroneous as a matter of law and should have been reversed.

Section 473, subdivision (b), contains two distinct provisions for relief: one is discretionary and is reserved for situations of excusable neglect, while the other is mandatory and applies even to inexcusable neglect of an attorney resulting in his or her client’s default provided that the attorney submits an adequate affidavit of fault. See Martin Potts & Associates, Inc. v. Corsair, LLC, (2016) 244 Cal.App.4th 432, 438.

Here, the trial court rejected discretionary relief from the default and default judgment but found that mandatory relief was available based on the mortgagee’s attorney’s declaration of fault. The Fifth District thus determined that the issue on appeal was whether grounds for mandatory relief were presented — i.e., whether the requirements for such relief under the statute were met.

The mandatory relief provision of section 473, subdivision (b), states as follows:

“Notwithstanding any other requirements of this section, the court shall, whenever an application for relief is made no more than six months after entry of judgment, is in proper form, and is accompanied by an attorney’s sworn affidavit attesting to his or her mistake, inadvertence, surprise, or neglect, vacate any (1) resulting default entered by the clerk against his or her client, and which will result in entry of a default judgment, or (2) resulting default judgment or dismissal entered against his or her client, unless the court finds that the default or dismissal was not in fact caused by the attorney’s mistake, inadvertence, surprise, or neglect.”

The Fifth District noted that, when a complying affidavit is filed, relief is mandatory, even if the attorney’s neglect was inexcusable. Rodrigues v. Superior Court, (2005) 127 Cal.App.4th 1027, 1033.

However, relief may be denied if the court finds the default was not in fact the attorney’s fault, for example when the attorney is simply covering up for the client’s neglect. Rogalski v. Nabers Cadillac, (1992) 11 Cal.App.4th 816, 821. Similarly, where a party inexcusably allows default to be entered and then afterwards hires an attorney, the provision does not apply because the default must in fact be caused by the attorney’s mistake. Cisneros v. Vueve, (1995) 37 Cal.App.4th 906, 908, 910-912.

Here, the Fifth District observed that it was undisputed that the mortgagee’s default was entered on Nov. 14, 2018, but the mortgagee’s attorney was not referred or assigned to act as attorney on the case until Jan. 10, 2019. Because attorney error could not possibly have caused the default in this case, the Court held that mandatory relief was unavailable and that the trial court erred as a matter of law in granting mandatory relief under section 473, subdivision (b).

The Fifth District then moved on to address the mortgagee’s cross-appeal challenging the judgment quieting title. According to the mortgagee, the judgment must be reversed because the plaintiffs’ possession of the property was not hostile and adverse to the mortgagee’s title for a full five years.

The elements of an adverse possession claim consist of the following: (1) actual possession by the plaintiff of the property under claim of right or color of title; (2) the possession consists of open and notorious occupation of the property in such a manner as to constitute reasonable notice to the true owner; (3) the possession is adverse and hostile to the true owner; (4) the possession is uninterrupted and continuous for at least five years; and (5) the plaintiff has paid all taxes assessed against the property during the five-year period. Hansen v. Sandridge Partners, L.P., (2018) 22 Cal.App.5th 1020, 1032b 1033.

Based on its review of the undisputed facts and applicable law, the Fifth District concluded that the plaintiffs had not established that their possession of the property was adverse or hostile to the bank for the required five-year period. Rather, the plaintiffs’ possession of the property did not become adverse or hostile to the mortgagee’s rights until the mortgagee actually took title under the trustee’s deed in April 2018, only a few months before the plaintiffs’ complaint was filed.

The Fifth District noted that the trustee’s deed was based upon the foreclosure of the 2005 deed of trust, a deed of trust that was executed and recorded as a lien or encumbrance on the property long before the plaintiffs’ adverse possession began.

Under such facts, the Court held that, during the time when the mortgagee’s interest was merely that of beneficiary of the 2005 deed of trust (i.e., a lienholder), the plaintiffs’ possession of the property would not be considered hostile to the mortgagee’s rights. See Comstock v. Finn, (1936) 13 Cal.App.2d 151, 155-158. “A mortgagor or his grantee in possession of mortgaged property may not set up the [adverse possession] statute of limitations against the mortgagee since such possession is presumed to be amicable and in subordination to the mortgage.”  Laubisch v. Roberdo, (1954) 43 Cal.2d 702, 706.

Additionally, the Fifth District determined that the plaintiffs could gain no greater title than that of the original owners they had dispossessed; namely, title subject to the 2005 deed of trust. See Williams v. Sutton, (1872) 43 Cal. 65, 73. Consequently, the Court held that the plaintiffs’ adverse possession claim was subject to and eliminated by the mortgagee’s foreclosure of the 2005 deed of trust.

Based on the record and title documents before it, the Court concluded that the bank, and not the plaintiffs, held the rightful title and ownership of the property under the 2018 trustee’s deed.

Accordingly, on the plaintiffs’ appeal, the Fifth District reversed the trial court’s order under section 473 to set aside the default and judgment. However, on the mortgagee’s cross-appeal, the Court reversed the judgment quieting title, and the matter was remanded to the trial court to enter a new judgment in favor of the mortgagee.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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