Opinion
A150279
10-17-2018
DEUTSCHE BANK NATIONAL TRUST COMPANY, Plaintiff and Respondent, v. E*TRADE BANK, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Sonoma County Super. Ct. No. SCV253528)
Appellant E*Trade Bank (E*Trade) was the beneficiary of a deed of trust securing a home equity line of credit. When the borrowers refinanced their property, E*Trade received a full payoff of the outstanding balance on the line of credit but failed to reconvey the deed of trust. Respondent Deutsche Bank National Trust Company (Deutsche Bank) sued and obtained a declaratory judgment canceling E*Trade's unreconveyed deed of trust.
On appeal from the judgment, E*Trade raises two main contentions: first, the trial court erred in issuing a statement of decision that did not include findings on controverted issues at trial, including several of E*Trade's affirmative defenses; and second, the trial court erred in cancelling E*Trade's deed of trust pursuant to Civil Code sections 2941 and 2943. We agree, in part, with E*Trade's first contention and will reverse the judgment with directions to the trial court to issue a new statement of decision and enter a new judgment, consistent with our holdings herein.
All further statutory references are to the Civil Code unless otherwise indicated.
BACKGROUND
In 1997, Mark and Mary Lou Rishell (the Rishells) took title to real property in Santa Rosa (the Property). In 2004, they obtained a loan in the amount of $350,000 secured against the Property pursuant to a deed of trust recorded in favor of Millenia Mortgage Corp., which was subsequently assigned to Countrywide Home Loans Servicing LP (Countrywide) (the Countrywide deed of trust).
The E*Trade HELOC and Deed of Trust
In May 2005, the Rishells obtained a $100,000 home equity line of credit from E*Trade (the E*Trade HELOC). Under the "Home Equity Line of Credit Agreement and Disclosure Statement" (the HELOC agreement), the Rishells had the right to draw on the line of credit until May 1, 2015. The HELOC agreement further provided that the Rishells could "cancel this Agreement by notifying us in writing . . . , paying the entire HELOC Account balance in full, and returning to us all of your unused Checks and other access devices you have under this Agreement. You may also have to pay [a] termination fee . . . and [a] lien release fee . . . . This Agreement remains in effect until you have complied with all of these requirements."
The E*Trade HELOC was secured against the Property by an "Open-End Deed of Trust" recorded in favor of E-Loan, Inc., which was subsequently assigned to E*Trade (the E*Trade deed of trust). Paragraph 19 of the E*Trade deed of trust stated, in pertinent part: "Upon payment of all sums secured by this Deed of Trust, we or the Trustee shall release this Deed of Trust."
The 2006 Refinance Loan
In September 2006, the Rishells obtained a refinance loan in the amount of $479,500 (the 2006 refinance loan) from Paul Financial, LLC (Paul Financial). The 2006 refinance loan was secured against the Property by a deed of trust recorded in favor of Paul Financial (the 2006 refinance deed of trust). The proceeds from the 2006 refinance loan were to be used to pay off the outstanding balances under the Countrywide and E*Trade deeds of trust so that the only remaining encumbrance against the Property would be the 2006 refinance deed of trust.
On September 18, 2006, E*Trade sent a letter addressed to Mrs. Rishell stating, "Thank you for contacting E*Trade Bank. The information regarding how to payoff your Line of Credit is below." The letter referred to a "payoff" date of "10-03-2006" and advised Mrs. Rishell to mail her payment at least five days before the payoff date to ensure it arrived on time. It also provided the amount due on the payoff date ($100,956.55) and the daily amount due after the payoff date ($22.25). The letter further stated, "You must complete the attached 'Payoff Request Form', and mail it with your payoff check . . . ." The attached form contained two boxes to check: "Payoff only—All or part of the outstanding balance is being paid. Do not suspend my ability to continue to use this account, or, [¶] Payoff, Terminate and Satisfy/Discharge Mortgage—Upon the Bank's receipt of payment of the entire outstanding balance, terminate my home equity line of credit so that: (1) no further borrowings under the line of credit can take place, and (2) the mortgage will be satisfied/marked discharged." The form advised, "If neither block is checked, the account will remain open and no satisfaction of mortgage will be filed." The September 18, 2006 letter and payoff request form were contained within the escrow file maintained by Cornerstone Title Company (Cornerstone) in connection with the 2006 refinance loan.
On September 22, 2006, proceeds from the 2006 refinance loan in the amount of $375,480.93 were paid to Countrywide pursuant to a payoff demand from Countrywide. Also that day, a check was issued from Cornerstone to E*Trade for the sum of $100,965.55, providing for the payoff of the E*Trade HELOC. The Countrywide deed of trust was reconveyed on October 4, 2006. However, there was no reconveyance of the E*Trade deed of trust.
Subsequent Draw on the E*Trade HELOC
Mr. Rishell testified that after the 2006 refinance loan closed, he did not know the line of credit was still open until the Rishells received solicitations from E*Trade stating that the equity line was available. In 2007, the Rishells drew additional sums against the E*Trade HELOC and maxed out the line of credit again.
Foreclosure Proceedings
The Rishells eventually defaulted on the 2006 refinance loan. On March 16, 2012, the beneficial interest of the 2006 refinance deed of trust was assigned to Deutsche Bank. On December 21, 2012, a notice of trustee's sale was recorded against the Property on behalf of Deutsche Bank for the amount of $569,642.46 owing under the 2006 refinance deed of trust. On April 3, 2013, a notice of trustee's sale was recorded against the Property on behalf of E*Trade for the amount of $108,956.73 owing under the E*Trade deed of trust.
The Litigation
In April 2013, Deutsche Bank filed a complaint for declaratory relief, injunctive relief, and to impress an equitable lien. Deutsche Bank alleged that under paragraph 19 of the E*Trade deed of trust, a reconveyance was required upon the payment of the sum demanded to pay off the balance owed, and the failure to record such a reconveyance constituted a breach of E*Trade's obligations. Deutsche Bank sought a declaratory judgment that the 2006 refinance deed of trust was in the first position on the Property prior to the E*Trade deed of trust. Deutsche Bank also sought an injunction against a scheduled trustee's sale, and an equitable lien in the first position on the Property.
E*Trade filed an answer to the complaint, denying the allegations and raising several affirmative defenses, including the statute of limitations, laches, unclean hands, and good faith compliance with applicable state and federal laws. The answer was later amended to include the defense of adequate remedy at law.
Trial and Tentative Statement of Decision
A three-day court trial was held in July 2016.
In October 2016, the trial court issued a four-page tentative statement of decision in favor of Deutsche Bank. The court found that proceeds from the 2006 refinance loan were paid to E*Trade "pursuant to a payoff demand from E*Trade Bank" and that "E*Trade was required to cancel and reconvey its Deed of Trust upon being paid in full from the proceeds of [Deutsche Bank's] refinance loan in 2006 under both the governing statutes—California Civil Code sections 2941 and 2943—and E*Trade's own contractual obligations under E*Trade's Deed of Trust." The court quoted paragraph 19 of the E*Trade deed of trust and noted that it "did not require that the Rishell's [sic] sign a 'closeout letter' requesting that the E*Trade Deed of Trust be closed nor was paragraph 19 of the E*Trade Deed of Trust inconsistent with E*Trade's obligations under the home equity line of credit secured by its Deed of Trust. The Court further finds that no evidence was presented at trial that the Rishell's [sic] did not in fact sign the 'closeout letter' attached to E*Trade's payoff demand and return it to the servicer." The court declared that the E*Trade deed of trust "is hereby cancelled, released and removed as an encumbrance of record against the subject property . . . ."
We understand the term " 'closeout letter' " here to refer to the payoff request form attached to E*Trade's September 18, 2006 letter to Mrs. Rishell.
Request for Statement of Decision and Objections
E*Trade filed a request for a statement of decision under section 632 of the Code of Civil Procedure, seeking an explanation of the factual and legal bases on 18 issues.
On November 3, 2016, the trial court filed a proposed statement of decision adopting the tentative statement of decision. With regard to E*Trade's request, the trial court stated, "[T]he Tentative Statement of Decision provided an explanation of the factual and legal basis for the court's decision regarding such principal controverted issues at trial as are listed in the 18 questions. To confirm, the primary issue for the court was [E*Trade's] question number 14: 'Whether Plaintiff has a superior claim to equity than Defendant.' The answer is, 'YES.' "
E*Trade objected to the proposed statement of decision, outlining 15 issues that it claimed were in controversy but were not addressed by the trial court. These issues were: (1) whether Deutsche Bank had done equity to seek equitable relief; (2) whether Deutsche Bank exercised due diligence in its pursuing claims in this action; (3) whether Paul Financial exercised due diligence in the origination of the refinance loan; (4) whether Deutsche Bank exercised due diligence in its acquisition of the refinance loan from Paul Financial; (5) whether E*Trade's September 18, 2006 letter was a " 'beneficiary statement' " or " 'payoff demand statement' " under section 2943; (6) whether E*Trade was obligated to reconvey the HELOC deed of trust under sections 2941 and 2943; (7) whether E*Trade was precluded from reconveying the HELOC deed of trust by the federal Truth in Lending Act (TILA; 15 U.S. C. § 1601 et seq.); (8) whether Deutsche Bank was entitled to rely on the protections for payoff demand statements issued under section 2943; (9) whether Deutsche Bank had an adequate remedy at law under section 2941 or otherwise; (10) whether Deutsche Bank's causes of action were barred by applicable statutes of limitations; (11) whether Deutsche Bank met its burden to prove that the doctrine of delayed discovery should apply; (12) whether any statutes of limitations were tolled; (13) whether Paul Financial had actual, implied or constructive knowledge that E*Trade had represented it would not reconvey the HELOC deed of trust absent a request from the Rishells; (14) whether Deutsche Bank can utilize E*Trade's breach of the HELOC deed of trust to support its claim for declaratory relief; and (15) whether Paul Financial had actual, implied or constructive knowledge of the terms of the HELOC deed of trust.
The trial court made no further modification to its statement of decision.
Judgment and Appeal
On November 17, 2016, the court entered judgment in favor of Deutsche Bank. E*Trade timely appealed.
DISCUSSION
I. The Trial Court's Statement of Decision
E*Trade argues the trial court erred in not issuing findings on the 15 issues outlined in its objections to the proposed statement of decision. This error was reversible, E*Trade contends, because the evidence at trial was sufficient to sustain findings in E*Trade's favor on all of the issues raised by the objections.
Deutsche Bank responds that the trial court made all necessary findings on the material issues supporting its judgment and was not required to respond point by point to the subsidiary issues outlined in E*Trade's request for a statement of decision and objections to the proposed statement of decision.
a. Standard of Review
Code of Civil Procedure sections 632 and 634 "establish a two-step procedure for requesting a statement of decision and preserving objections for pursuit on appeal." (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 982 (Thompson).) "Under section 632, upon a party's request after trial, the court must issue a statement of decision 'explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial.' And under section 634, if the statement of decision does not resolve a controverted issue or is ambiguous, and the omission or ambiguity was brought to the attention of the trial court, 'it shall not be inferred on appeal . . . that the trial court decided in favor of the prevailing party as to those facts or on that issue.' " (Thompson, at p. 981.)
"Even where proper procedure under sections 632 and 634 has been followed punctiliously, '[t]he trial court is not required to respond point by point to the issues posed in a request for statement of decision. The court's statement of decision is sufficient if it fairly discloses the court's determination as to the ultimate facts and material issues in the case.' [Citations.] 'When this rule is applied, the term "ultimate fact" generally refers to a core fact, such as an essential element of a claim.' [Citation.] 'Ultimate facts are distinguished from evidentiary facts and from legal conclusions.' [Citation.] Thus, a court is not expected to make findings with regard to 'detailed evidentiary facts or to make minute findings as to individual items of evidence.' " (Thompson, supra, 6 Cal.App.5th at p. 983.)
"When findings on material subsidiary issues of fact are requested or when the omission of such findings is brought to the trial court's attention prior to entry of judgment, the trial court is required to make such findings. [Citations.] A 'material' issue of fact is one which is relevant and essential to the judgment and closely and directly related to the trial court's determination of the ultimate issues in the case." (Kuffel v. Seaside Oil Co. (1977) 69 Cal.App.3d 555, 565 (Kuffel).)
b. Principal Controverted Issues at Trial
We conclude that many of E*Trade's objections were without merit because either the proposed statement of decision made the necessary findings of ultimate fact (objections 1, 5 and 6), or the objections did not pertain to principal controverted issues, but rather, subsidiary and/or evidentiary matters for which the trial court was not required to make findings (objections 2 through 4, 8, and 13 through 15). (See Thompson, supra, 6 Cal.App.5th at p. 983; Kuffel, supra, 69 Cal.App.3d at p. 566.)
However, E*Trade's objections 7 and 9 through 12 were well taken, as the issues raised by these objections corresponded to affirmative defenses pleaded in E*Trade's answer to the complaint. " 'It is essential that, unless they are waived, findings be made on every material issue raised by the pleadings and the evidence, whether those issues are raised by denial of the allegations of the complaint or cross-complaint, or on affirmative defenses set up in the answer or cross-complaint.' " (MacMorris Sales Corp. v. Kozak (1968) 263 Cal.App.2d 430, 440.) "The failure to make a finding on the affirmative defense, when supported by the evidence, may well vitiate the judgment." (Duff v. Duff (1967) 256 Cal.App.2d 781, 786 (Duff) [statute of limitations and laches defenses were material and required findings].) E*Trade asserted affirmative defenses of the statute of limitations, laches, compliance with applicable state and federal laws (including TILA), and adequacy of a remedy at law. Whether accrual of the statute of limitations was tolled or delayed by the discovery rule was a "material subsidiary issue" closely and directly related to the statute of limitations defense. (Kuffel, supra, 69 Cal.App.3d at p. 565.) All of these issues were raised at trial, as evidenced by the parties' trial briefs.
E*Trade also argues the trial court erred in not issuing a finding on its unclean hands affirmative defense. However, E*Trade did not object to the proposed statement of decision on this ground and therefore waived the right to complain of this deficiency on appeal. (See Thompson, supra, 6 Cal.App.5th at p. 983.)
Because E*Trade requested findings on these principal controverted issues and objected to the lack of findings in the proposed statement of decision, the trial court erred in failing to make the requested findings. (Duff, supra, 256 Cal.App.2d at p. 786.)
c. Harmless Error
" '[E]ven though a court fails to make a finding on a particular matter, if the judgment is otherwise supported, the omission is harmless error unless the evidence is sufficient to sustain a finding in favor of the complaining party which would have the effect of countervailing or destroying other findings.' " (Thompson, supra, 6 Cal.App.5th at p. 983.) Thus, we must determine whether the record supports E*Trade on each of the principal controverted issues omitted from the statement of decision.
i. Compliance with TILA
E*Trade argues it was precluded from reconveying the deed of trust due to its good faith compliance with TILA, which prohibits creditors from terminating a line of credit and accelerating a payment of the outstanding balance before the scheduled expiration of the HELOC plan.
We begin our analysis of this issue by examining the relevant statutes. "TILA . . . and its accompanying regulations . . . require specific disclosures by businesses offering consumer credit (including mortgage loans). TILA's purpose is to 'avoid the uninformed use of credit.' " (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 244.) Thus, "[a] creditor may not unilaterally terminate any account under an open end consumer credit plan under which extensions of credit are secured by a consumer's principal dwelling and require the immediate repayment of any outstanding balance at such time, except in the case of" fraud, failure to meet repayment terms, or any other action or failure to act by the consumer which adversely affects the creditor's security or right in the security. (15 U.S.C. § 1647(b).)
"[T]here is no express preemption [under TILA]. Rather than limiting the applicability of state law, TILA emphasizes the continued role of state law, stating that it does 'not annul, alter, or affect the laws of any State relating to the disclosure of information in connection with credit transactions, except to the extent that those laws are inconsistent with the provisions of this subchapter and then only to the extent of the inconsistency.' " (Black v. Financial Freedom Senior Funding Corp. (2001) 92 Cal.App.4th 917, 936.)
Sections 2941 and 2943 set forth various obligations of a beneficiary under a deed of trust. Section 2941 provides, in relevant part, that "[w]ithin 30 calendar days after the obligation secured by any deed of trust has been satisfied, the beneficiary . . . shall execute and deliver to the trustee the . . . request for a full reconveyance, and other documents as may be necessary to reconvey, or cause to be reconveyed, the deed of trust." (§ 2941, subd. (b)(1).)
Section 2943 pertains to the payoff demand process. Section 2943, subdivision (a)(5), defines a "payoff demand statement" as "a written statement, prepared in response to a written demand made by an entitled person or authorized agent, setting forth the amounts required as of the date of preparation by the beneficiary, to fully satisfy all obligations secured by the loan that is the subject of the payoff demand statement." Section 2943, subdivision (c), provides that "[a] beneficiary . . . shall, on the written demand of an entitled person . . . prepare and deliver a payoff demand statement to the person demanding it within 21 days of the receipt of the demand."
The trial court held that because the 2006 refinance loan proceeds were paid "pursuant to a payoff demand" from E*Trade, E*Trade was required by sections 2941 and 2943 to cancel and reconvey its deed of trust upon being paid in full. In our view, this interpretation of state law was not inconsistent with TILA because it was based on evidence that the Rishells manifestly intended to pay off, rather than merely pay down, their line of credit. As Deutsche Bank's expert testified, if the Rishells were simply going to pay down the balance on the HELOC, they would not have gone through the statutory payoff demand process or incurred fees from an escrow company to make the payoff. Thus, E*Trade's compliance with sections 2941 and 2943, as interpreted by the trial court here, would in no way result in the "unilateral" termination of the Rishells' line of credit or the acceleration of the outstanding balance against their wishes in violation of TILA. (See 15 U.S.C. § 1647(b).)
Because the evidence did not support E*Trade's affirmative defense that the action was barred by E*Trade's compliance with TILA, the trial court's failure to make findings on this defense was harmless.
ii. Adequate Remedy at Law
" '[A] proper exercise of the equitable jurisdiction will not give equitable relief in any case where the legal remedy is full and adequate and does complete justice.' " (Wilkison v. Wiederkehr (2002) 101 Cal.App.4th 822, 834 (Wilkison).) E*Trade contends there was an adequate remedy at law under section 2941, subdivision (b)(3), which allowed Deutsche Bank's predecessor, Paul Financial, to direct a title company (e.g., Cornerstone) to record a release of the E*Trade deed of trust after E*Trade failed to execute the reconveyance. E*Trade argues that this affirmative defense applies to Deutsche Bank, which took its interest in the 2006 refinance loan subject to all defenses that could have been asserted against Paul Financial.
Section 2941, subdivision (b)(3), provides, in pertinent part, that if a beneficiary fails to record a reconveyance "within 75 calendar days of satisfaction of the obligation, then a title insurance company may prepare and record a release of the obligation." The release "shall be entitled to recordation and, when recorded, shall be deemed to be the equivalent of a reconveyance of a deed of trust." (§ 2941, subd. (b)(3)(B).)
In Prudential Home Mortgage Co. v. Superior Court (1998) 66 Cal.App.4th 1236 (Prudential), borrowers brought putative class actions alleging that the defendant mortgage lenders violated section 2941 by failing to record reconveyances of deeds of trust after the loans were paid off. The borrowers sought to recover the statutory forfeitures under section 2941, subdivision (d), and also requested equitable relief under Business and Professions Code section 17200 et seq., requiring the lenders to reconvey the deeds of trust. (See Prudential, at p. 1240.) The Court of Appeal issued a writ directing the trial court to strike the request for equitable relief, holding that because the Legislature has established statutory "backup methods" for clearing title when a lender fails to execute a request for reconveyance under section 2941, subdivision (b)(1), "we must assume the statutory remedies are adequate, thus precluding equitable relief under the Business and Professions Code." (Prudential, at p. 1250.)
Deutsche Bank argues that section 2941, subdivision (b)(3), does not apply because Deutsche Bank is not a title insurance company, and no title insurance company was a party to the instant action. However, nothing in section 2941 suggests that a title insurance company must be sued in litigation in order to utilize the statutory backup method for obtaining a recorded release of the obligation.
Deutsche Bank further contends that section 2941, subdivision (b)(3), merely provides an optional method for securing release of a deed of trust when the beneficiary does not comply. Although the statute uses the word "may" in discussing the use of a title insurance company to record a release, this does not imply the availability of equitable relief, and Prudential squarely forecloses any such implication. (Prudential, supra, 66 Cal.App.4th at p. 1250.)
Finally, Deutsche Bank contends that E*Trade takes Prudential out of context by citing language addressing the borrowers' claim that "even after a title company recorded a release under § 2941[, subd. ](b)(3), a lender should still be compelled . . . to record a reconveyance because the release 'is not considered by knowledgeable persons within the industry as sufficient to clear title.' " Deutsche Bank argues "[t]his ruling has nothing to do with the instant case, in which no title company release was involved . . . ." We reject this attempt to distinguish Prudential as applying only in cases that involve a title company release. In the cited portion, the court was rejecting the borrowers' argument that the legal remedy of a title company release would not provide "complete relief because it would not be considered sufficient in the industry to clear title. (Prudential, supra, 66 Cal.App.4th at p. 1250.) The court reaffirmed the adequacy of this legal remedy by "resort[ing] to the language of the statute" stating that a title company release "shall be deemed" the equivalent of a reconveyance. (Ibid.)
Deutsche Bank does not dispute that, as assignee of the 2006 refinance loan, it was subject to all defenses that could have been asserted against Paul Financial. (See Lombardi v. Sinanides (1925) 71 Cal.App. 272, 276-277.) Nor does Deutsche Bank dispute that Cornerstone was a "title insurance company" within the meaning of section 2941, subdivision (b)(3), who could have recorded a release of the E*Trade deed of trust. Thus, the evidence at trial could have sustained a finding in E*Trade's favor that there was an adequate remedy of law, even if not properly pursued, which would have undermined Deutsche Bank's entitlement to equitable relief. (See Wilkison, supra, 101 Cal.App.4th at p. 830.) Accordingly, the trial court's failure to issue a finding on this affirmative defense was prejudicial.
iii. Statute of Limitations
E*Trade argues, and Deutsche Bank does not dispute, that the four-year catchall limitations provision of Code of Civil Procedure section 343 applies to Deutsche Bank's claims in this case. As for when the statute of limitations began to accrue, E*Trade contends the clock began to run in September 2006 when the E*Trade deed of trust was not reconveyed, and therefore, the action filed by Deutsche Bank in April 2013 was untimely. Deutsche Bank responds that the statute of limitations did not begin to accrue until a hostile claim was made by E*Trade, and this did not occur until after Deutsche Bank recorded a notice of default in September 2012 and received a Trustee's Sale Guarantee noting that the E*Trade deed of trust remained on record.
In support of its position, Deutsche Bank cites Secret Valley Land Company v. Perry (1921) 187 Cal. 420 (Secret Valley) and two cases applying it, Cole v. Ames (1957) 155 Cal.App.2d 8 (Cole); Beyl v. Robinson (1960) 179 Cal.App.2d 444 (Beyl). In Secret Valley, the defendant purchased property from the government, and the plaintiff later bought the same property at a tax sale. (Secret Valley, at pp. 421-422.) In the plaintiff's quiet title action against the defendant, the trial court held that the defendant was barred by laches from asserting a defensive claim of title to the property. (Id. at p. 421.) The Supreme Court reversed and held that where both parties claimed record title from a common source, the party with the superior claim had the right to rest on the sufficiency of its own claim because "[a] defendant holding the legal title, or a paramount claim to the legal title, is not called upon to take action against a hostile claim which is not of a nature to ripen into a valid adverse title." (Id. at p. 426.) "An outstanding adverse claim, which amounts only to a cloud upon the title, is a continuing cause of action, and is not barred by lapse of time, until the hostile claim is asserted in some manner to jeopardize the superior title. So long as the adverse claim lies dormant and inactive, the owner of the superior title may not be incommoded by it and has the privilege of allowing it to stand indefinitely." (Id. at p. 426.)
We agree with E*Trade that Secret Valley and its progeny are not controlling, as these cases involved quiet title actions in which the party against whom the statute of limitations was asserted held lawful title and was in possession of the property, while the hostile claim of the opposing party could not ripen into adverse title by mere passage of time. In discussing Secret Valley, the court in Salazar v. Thomas (2015) 236 Cal.App.4th 467 (Salazar) explained that "quiet title actions have special rules for when the limitations period begins to run. [¶] . . . . ' "[A]s a general rule, the statute of limitations [for a quiet title action] does not run against one in possession of land." ' [Citation.] Part of the rationale for this special rule for quiet title actions is an unwillingness to convert a statute of limitations into a statute that works a forfeiture of property rights on the person holding the most obvious and important property right—namely, possession." (Salazar, at p. 477.) As the instant matter was not a quiet title action and Deutsche Bank was not the lawful owner of the property in undisturbed possession thereof, the special rule for statutes of limitations discussed in Secret Valley and Salazar is inapplicable. Furthermore, even if the rule in Secret Valley could be applied in the context of a lien priority dispute such as this, it would still require that Deutsche Bank had a "superior" claim in order to justify its decision to rest until called upon to take action against a hostile claim. (See Secret Valley, supra, 187 Cal. at p. 426.) Deutsche Bank did not have a superior claim because its lien was, from the outset, in a junior position to E*Trade's deed of trust.
In Cole, the plaintiffs were homebuyers who sued creditors to quiet title and cancel a note and trust deed. (Cole, supra, 155 Cal.App.2d at p. 11.) In Beyl, the plaintiffs were debtors who used the loan proceeds to build a home and sued the creditor's estate to quiet title, restrain foreclosure of trust deeds, and cancel the notes. (Beyl, supra, 179 Cal.App.2d at p. 445, 448.)
Deutsche Bank does not assert any other basis for tolling the accrual of the statute of limitations. Because the rule in Secret Valley does not apply, and the evidence at trial could have supported a finding in E*Trade's favor that the action was untimely, the trial court's failure to make findings on the statute of limitations defense was prejudicial.
iv. Laches
"Laches is an equitable time limitation on a party's right to bring suit, resting on the maxim that 'equity aids the vigilant, not those who sleep on their rights.' " (Magic Kitchen LLC v. Good Things Internat., Ltd. (2007) 153 Cal.App.4th 1144, 1156.) The elements of laches are delay, as measured by the period from when the plaintiff knew (or should have known) of the allegedly infringing conduct until the initiation of the lawsuit, reasonableness of the delay, and prejudice. (Id. at pp. 1157-1161.) Prejudice " ' "ensues when a defendant has changed his position in a way that would not have occurred if the plaintiff had not delayed." ' " (Id. at p. 1161.)
On appeal, the parties dispute whether there was sufficient evidence of prejudice. E*Trade argues that prejudice may be presumed where a statute of limitations sufficiently analogous to the facts of the case has been exceeded. However, the case relied upon by E*Trade for this proposition, Fountain Valley Regional Hospital & Medical Center v. Bonta (1999) 75 Cal.App.4th 316, involved "borrowing" a statute of limitations to assert laches in an administrative proceeding where no statute of limitations directly applied. (Id. at pp. 324-325.) E*Trade cites no cases applying this rule beyond administrative proceedings. Instead, the general rule is that "[p]rejudice is never presumed; rather it must be affirmatively demonstrated by the defendant in order to sustain his burdens of proof and the production of evidence on the issue." (Miller v. Eisenhower Medical Center (1980) 27 Cal.3d 614, 624.)
E*Trade also argues that a defendant asserting the equitable defense of laches can, instead of demonstrating prejudice, show the plaintiff's acquiescence in the act about which the plaintiff complains. (See Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 68.) Even so, E*Trade fails to show that Paul Financial acquiesced in the nonreconveyance of the E*Trade deed of trust. Rather, the evidence shows that the 2006 refinance loan was always intended to pay off the E*Trade HELOC so that the only remaining encumbrance against the Property would be the 2006 refinance deed of trust.
Finally, E*Trade argues it was prejudiced by Paul Financial's delay because in the intervening years between 2006 and 2013, the Rishells were able to once again max out the line of credit, and the balance of the 2006 refinance loan nearly doubled, "wiping out" any equity in the Property that E*Trade could have claimed in 2006. We are not persuaded by these arguments. E*Trade fails to show that it was prejudiced by simply maintaining the Rishells' line of credit, which remained secured by the unreconveyed deed of trust. E*Trade submitted no evidence that it took any steps toward collecting on its loans prior to December 2012, or that the equity in the Property was "wiped out." The evidence that the 2006 refinance loan balance increased says nothing about the appraised value of the Property. Because the evidence was not sufficient to sustain a finding in favor of E*Trade on the essential element of prejudice, the trial court's failure to make findings on E*Trade's laches defense was harmless.
In summary, we find prejudicial error in the trial court's failure to issue findings on E*Trade's affirmative defenses of adequate remedy at law and the statute of limitations. Accordingly, we shall reverse the judgment and direct the trial court to issue a new statement of decision consistent with the views expressed herein.
In the ensuing discussion, we address E*Trade's remaining contention that the trial court committed further error in cancelling E*Trade's deed of trust.
II. The Trial Court's Decision to Cancel the E*Trade Deed of Trust
E*Trade makes several arguments in support of the claimed errors by the trial court in cancelling the E*Trade deed of trust. First, E*Trade contends the trial court erred in determining that E*Trade's September 18, 2006 letter and attached payoff request form constituted a "payoff demand statement" within the meaning of section 2943, subdivision (a)(5). E*Trade further argues the trial court erred in finding that E*Trade was obligated to reconvey the deed of trust based on the deed's terms because: (1) Deutsche Bank did not have standing to assert any breach of the E*Trade deed of trust; and (2) paragraph 19 of the E*Trade deed of trust conflicted with the HELOC agreement's conditions for closing the account, and in such conflicts, the debt instrument controls over the security instrument. Finally, E*Trade argues the trial court erred in interpreting sections 2941 and 2943 to apply to issuers of lines of credit.
We summarily dispose of E*Trade's contention that declaratory relief was improperly granted in this case to address a past wrong, as it appears that E*Trade forfeited this issue by not raising it in the court below. (Children's Hospital & Medical Center v. Bonta (2002) 97 Cal.App.4th 740, 776-777.) Furthermore, even if the issue was properly preserved for review, a cause of action for declaratory relief is often used in place of or in conjunction with equitable claims to remove a cloud on title. (See 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 655, p. 82; Bank of New York Mellon v. Citibank, N.A. (2017) 8 Cal.App.5th 935, 945 (Bank of New York) [declaratory relief action for equitable subrogation].)
a. Standard of Review
"After a trial court has exercised its equitable powers, the appellate court reviews the judgment under the abuse of discretion standard. [Citation.] [¶] ' "The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason. When two or more inferences can reasonably be deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court." [Citation.] [¶] "The abuse of discretion standard . . . measures whether, given the established evidence, the act of the lower tribunal falls within the permissible range of options set by the legal criteria." ' [Citation.] The scope of the trial court's discretion is limited by law governing the subject of the action taken. [Citation.] An action that transgresses the bounds of the applicable legal principles is outside the scope of the trial court's discretion and, therefore, is deemed an abuse of discretion. [Citation.] [¶] In applying the abuse of discretion standard, we determine whether the trial court's factual findings are supported by substantial evidence and independently review its legal conclusions." (Valley Crest Landscape Development, Inc. v. Mission Pools of Escondido, Inc. (2015) 238 Cal.App.4th 468, 482.)
b. Payoff Demand Statement
As discussed, the trial court found that the 2006 refinance loan proceeds were used to pay off E*Trade's loan and deed of trust "pursuant to a payoff demand" from E*Trade. E*Trade argues the September 18, 2006 letter and payoff request form failed to conform to the statutory definition of a payoff demand letter in two respects.
First, E*Trade argues there was no evidence that the September 18, 2006 letter was in response to "a written demand" by an entitled person. (§ 2943, subd. (a)(5).) It is reasonably inferred from the face of the September 18, 2006 letter that it came in response to an initial contact from the addressee, Mary Rishell, and that a payoff amount was requested, as this was the information provided. Even if there was no evidence that the initial contact was "written," this is no justification for refusing to treat E*Trade's responsive letter as a payoff demand statement. A beneficiary, though not statutorily required to provide a payoff demand statement in response to an oral request as it would be in response to a written one, may nonetheless waive the right to a written request. We refuse to interpret section 2943 to allow a beneficiary who voluntarily issues a payoff demand statement in response to an oral request to later repudiate the statement's validity after it is has been relied upon by the entitled person. (See § 2943, subd. (d)(1) [payoff demand statement may be relied upon by entitled person].)
E*Trade's reliance on JCC Development Corp. v. Levy (2012) 208 Cal.App.4th 1522 is baseless, as that case had nothing to do with the consequences of a lender issuing a payoff demand statement in response to an oral request.
E*Trade next contends the September 18, 2006 letter did not meet the statutory definition of a payoff demand statement because it did not set forth the payoff amounts "as of the date of preparation by the beneficiary." (§ 2943, subd. (a)(5).) E*Trade cites no authority for the sweeping proposition that this error invalidates the statement. Indeed, in other contexts, when a beneficiary miscalculates the amounts due in a payoff demand statement and an entitled person relies on the statement, any amounts left out are simply no longer secured by the deed of trust. (See § 2943, subd. (d)(3); Cathay Bank v. Fidelity Nat. Title Ins. Co. (1996) 46 Cal.App.4th 266, 271.) Section 2943, subdivision (d)(3) was intended to " ' " 'shift the responsibility for calculating the amount to satisfy the loan from the borrowers [trustor or mortgagor] to [the] creditor [mortgagee or beneficiary].' " ' " (Cathy Bank, at p. 271.) Along the same lines, we conclude that E*Trade cannot avoid its responsibility for how the payoff amount was calculated in its own payoff demand statement.
For these reasons, we find the trial court correctly concluded that E*Trade issued a payoff demand statement within the meaning of the statute.
c. Lack of Standing
E*Trade argues that Deutsche Bank lacked standing to assert a breach of the E*Trade deed of trust because Deutsche Bank was not an intended beneficiary of that instrument. However, Deutsche Bank did not sue for breach of contract or, like the lender in Sheppard v. Banner Food Products, Inc. (1947) 78 Cal.App.2d 808, for specific performance of an unperformed contract. E*Trade's obligation under the deed of trust simply paralleled its statutory obligations under sections 2941 and 2943, and E*Trade does not contend that Deutsche Bank lacked standing to sue for declaratory relief based on E*Trade's breach of its statutory obligations.
" '[T]here is no facile formula for determining superiority of equities, for there is no formula by which to determine the existence or nonexistence of an equity except to the extent that certain familiar fact combinations have been repeatedly adjudged to create an equity in the surety or the third party.' " (State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (2006) 143 Cal.App.4th 1098, 1112.) Here, in determining which party had the superior claim to equity, the trial court reasonably considered E*Trade's obligations under the deed of trust as consistent with its obligations under the law.
d. Conflict Between the E*Trade Deed of Trust and HELOC Agreement
E*Trade argues the trial court erred in concluding that paragraph 19 of the E*Trade deed of trust required release of the lien, as this interpretation conflicts with paragraph 24 of the HELOC agreement, which requires several conditions to be satisfied in order to cancel the account, including written instructions from the borrowers. E*Trade argues that under Pacific Fruit Exchange v. Duke (1930) 103 Cal.App. 340 (Pacific Fruit), in the event of a conflict between a debt instrument and a security instrument, the terms of the debt instrument (e.g., the HELOC agreement) control.
In Pacific Fruit, the court held that where the language of the promissory note and deed of trust "respecting the maturity of [the] debt" was "irreconcilably inconsistent," the conflict is resolved in favor of the note. (Pacific Fruit, supra, at pp. 344-345.) Here however, the purported conflict between the HELOC agreement and the E*Trade deed of trust has nothing to do with the terms of the debt.
Furthermore, we do not find paragraph 19 of the E*Trade deed of trust and paragraph 24 of HELOC agreement to be "irreconcilably inconsistent." The former has the distinct purpose of describing the circumstance giving rise to E*Trade's obligation to release of a deed of trust (e.g., payment of the sums secured by the deed of trust), while the latter addresses a method for the borrower to cancel the line of credit. Paragraph 19 of the deed of trust makes no reference to a "close-out" letter or any other requirement of a written instruction from the borrower. "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." (§ 1638.) Here, the language of the two instruments clearly and explicitly govern different circumstances from one another. Furthermore, in the construction of an instrument, "a particular intent will control a general one that is inconsistent with it." (Code Civ. Proc., § 1859.) The particular intent of paragraph 19 of the E*Trade deed of trust is to address when a reconveyance of the deed of trust is required.
Finding no conflict between the instruments, we see no error in the trial court's interpretation of paragraph 19 of the E*Trade deed of trust.
e. Applicability of Sections 2941 and 2943 to Lines of Credit
E*Trade contends the trial court erred in cancelling the deed of trust under sections 2941 and 2943 because these statutes do not apply to lines of credit. E*Trade argues that to apply these statutes to lines of credit would divest borrowers of their bargained-for rights to take advances on the line of credit prior to the maturity date.
Under section 2941, subdivision (b)(1), the statutory obligation to reconvey applies to "any deed of trust . . . ." (Italics added.) There is nothing in the statute that treats lines of credit differently from other types of loans. "[S]ection 2941 makes no exception for lines of credit, and its procedures have been applied to such loans." (Bank of New York, supra, 8 Cal.App.5th at p. 945.)
E*Trade argues that Bank of New York supports its position that a line of credit is not deemed "satisfied" within the meaning of section 2941 upon full payment of the balance. E*Trade cites the court's holding that "nothing in [section 2941] requires that a mortgage be considered satisfied in all cases where the debt is reduced to zero; nor is there support for such a blanket rule at common law." (Bank of New York, supra, 8 Cal.App.5th at p. 945.) However, the court there was rejecting the specific argument that "a reconveyance was not even necessary" because a competing deed of trust had been extinguished "automatically" at payoff " 'by operation of law' " (id. at p. 944), a position that Deutsche Bank does not take here.
More importantly, the court in Bank of New York explained that "whether the payment of a debt operates to release the lien of a mortgage depends on the mortgage's terms and conditions" (Bank of New York, supra, 8 Cal.App.5th at p. 946), and in that case, the deed of trust provided that "the lien will be released upon payment of all obligations and upon the expiration of the agreement or upon the borrower's request." (Ibid.) Here, the E*Trade deed of trust did not contain similar language expressly conditioning release of the lien upon the expiration of the HELOC agreement or the borrower's request. The only stated condition for E*Trade to release the deed of trust was "payment of all sums secured by this Deed of Trust," and it was undisputed that such payment was made.
Finally, E*Trade argues that the Legislature's passage of section 2943.1 demonstrates that sections 2941 and 2943 in effect in 2006 did not apply to issuers of lines of credit. According to E*Trade, the legislative history of section 2943.1 shows that the Legislature intended to "provide a procedure" by which borrowers, lenders, or escrow or title companies could suspend and close a home equity line of credit. (Assem. Bill. Analysis, Sen. Jud. Comm., Assem. Bill No. 1770 (2013-2014 Reg. Sess.) as amended June 19, 2014, p. 1 (Assem. Bill Analysis).) E*Trade argues that had such a procedure been in place when the 2006 refinance loan closed, section 2943.1 would not have been necessary.
Section 2943.1, enacted in 2014 through Assembly Bill No. 1770 (2013-2014 Reg. Sess.), "provides that a lender must close the line of credit and release the lien on the property upon receipt of a payoff and written instructions from the borrowers to suspend and close the line of credit." (Bank of New York, supra, 8 Cal.App.5th at p. 947.) Although section 2943.1 created new procedures related to lines of credit, we disagree that this demonstrates the inapplicability of sections 2941 and 2943 to lines of credit prior to section 2943.1's effective date. In the legislative analysis of Assembly Bill No. 1770, the declarations of "existing law" specifically included sections 2941 and 2943, without differentiating between lines of credit and other secured loans. (Assem. Bill. Analysis, supra, pp. 2-3.) The analysis further stated that the newly enacted law would "additionally" impose the new requirements (id. at pp. 3-4), and, in discussing the need for the bill, observed that "[i]n many cases, title companies have encountered HELOCs, which should have been shut down during the escrow process . . . . [¶] [Assembly Bill No.] 1770 attempts to address that issue through clarity and tighter procedures created for lenders and 'entitled persons' (title companies) in the escrow process." (Id. at p. 5.) In other words, the Legislature intended to provide "clarity and tighter procedures" for closing equity lines of credit because they were not being closed as they should have been under existing law (e.g., §§ 2941 and 2943). In our view, the legislative history refutes E*Trade's contention that sections 2941 and 2943 did not apply to lines of credit at the time of the 2006 refinance loan.
III. The Trial Court's Ruling on the Burden of Persuasion
In the briefing of the case and during oral argument, E*Trade argued it was Deutsche Bank's burden to prove the payoff request form was returned by the Rishells, and since there was no evidence at trial that the Rishells did so, Deutsche Bank failed to carry its burden to prove that the HELOC was "satisfied" within the meaning of section 2941. We disagree. Although Deutsche Bank had the ultimate burden of proof that the HELOC was satisfied, it did not have the burden of producing evidence as to the particular fact that the payoff request form was returned by the Rishells. "Unlike the burden of proof, the burden of producing evidence may shift between plaintiff and defendant throughout the trial. [Citations.] Initially, the burden of producing evidence as to a particular fact rests on the party with the burden of proof as to that fact." (Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1667.) Here, it was E*Trade's contention that returning the payoff request form was required for the reconveyance. Accordingly, it was E*Trade's burden to produce the evidence showing that the Rishells did not, in fact, return the form. Because E*Trade failed to meet this burden factually, as indicated by the statement of decision, the trial court was permitted to infer that E*Trade was instructed to close the HELOC and thus had an obligation to pay off and close the line of credit, and thereafter issue a reconveyance. (See California Farm Bureau Federation v. State Water Resources Control Bd. (2011) 51 Cal.4th. 421, 436-437.)
DISPOSITION
In conclusion, we find no abuse of discretion in the trial court's decision to cancel the E*Trade deed of trust on the particular grounds urged by E*Trade in this appeal. However, as discussed, the judgment must be reversed and a new statement of decision must issue addressing E*Trade's affirmative defenses of the statute of limitations and adequate remedy at law. The judgment is reversed and remanded for further proceedings consistent with this opinion. Each party shall bear its own costs on appeal.
/s/_________
Dondero, J. We concur: /s/_________
Margulies, Acting P. J. /s/_________
Banke, J.