Opinion
A149531
07-27-2018
JOANN O'CONNOR, Plaintiff and Respondent, v. CARRINGTON FORECLOSURE SERVICES, LLC, et al., Defendants and Respondents; WEST RIDGE RENTALS, LLC, Intervener 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Mateo County Super. Ct. No. CIV533651)
After appellant West Ridge Rentals, LLC (West Ridge) was the high bidder at a foreclosure sale, the loan servicer instructed the trustee to withhold the trustee's deed upon sale because the homeowner claimed a dual tracking violation. We agree with West Ridge that, once the dual tracking violation was remedied, there was no basis to withhold the trustee's deed. We reverse in part the trial court's contrary judgment against West Ridge.
" '[D]ual tracking' . . . occurs when a bank forecloses on a loan while negotiating with the borrower to avoid foreclosure." (Valbuena v. Ocwen Loan Servicing, LLC (2015) 237 Cal.App.4th 1267, 1272 (Valbuena).)
BACKGROUND
In 2005, Joann O'Connor obtained a loan secured by a deed of trust on certain real property (the Property), and subsequently defaulted on the loan. As of 2015, the loan servicer was Residential Credit Solutions, Inc. (the Servicer) and the trustee was Carrington Foreclosure Services, LLC (the Trustee) (collectively, respondents). A foreclosure sale for the Property was set for September 14, 2015. Before this date, O'Connor had submitted a loan modification application to the Servicer. Although the Servicer determined it needed a credit authorization from O'Connor's husband to complete the application, it failed to tell O'Connor or her attorney of this requirement.
Although O'Connor is also a respondent, she did not file a response brief on appeal.
The foreclosure sale proceeded on September 14, 2015. The high bid of $1,621,000 was made on behalf of West Ridge, and payment (including a $4,000 overpayment) was tendered to the auctioneer. The following day, upon learning of the foreclosure sale, O'Connor's attorney told counsel for the Servicer and Trustee that the sale violated the California Homeowner's Bill of Rights (HBOR) prohibition of dual tracking. The Servicer instructed the Trustee not to deliver the trustee's deed upon sale (the Trustee's Deed) to West Ridge. The Trustee retained West Ridge's funds in a non-interest-bearing account.
The trial court found that West Ridge was a bona fide purchaser. Because no party disputes this finding on appeal, we omit background facts relating to the issue.
"The Homeowner Bill of Rights (Civ. Code, §§ 2920.5, 2923.4-.7, 2924, 2924.9-.12, 2924.15, 2924.17-.20) . . . , effective January 1, 2013, was enacted 'to ensure that, as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower's mortgage servicer, such as loan modifications or other alternatives to foreclosure.' [Citation.] Among other things, HBOR prohibits 'dual tracking' . . . ." (Valbuena, supra, 237 Cal.App.4th at p. 1272, fn. omitted.)
On September 21, 2015, O'Connor obtained a temporary restraining order enjoining the Trustee and Servicer from recording the Trustee's Deed and setting a preliminary injunction hearing. On October 13, the trial court granted West Ridge's motion to file a complaint in intervention against O'Connor, the Servicer, and the Trustee. As subsequently amended, West Ridge's complaint alleges multiple causes of action, claiming West Ridge is entitled to delivery of the Trustee's Deed and damages. The Servicer, the Trustee, and West Ridge all opposed O'Connor's request for a preliminary injunction. On October 29, the trial court denied O'Connor's request for a preliminary injunction and dissolved the temporary restraining order. Following this order, however, the Trustee did not deliver the Trustee's Deed to West Ridge.
O'Connor originally filed her lawsuit in May 2015, after the notice of trustee's sale was recorded.
A fourth defendant named in West Ridge's complaint was subsequently dismissed.
At some point between the foreclosure sale and March 1, 2016, the Servicer denied O'Connor's loan modification due to insufficient income. On March 1, servicing of the loan on the Property was transferred from the Servicer to a new entity.
In early May 2016, the Trustee cancelled the foreclosure sale at the instruction of the new servicing entity. On May 13, the Trustee returned to West Ridge the purchase funds it paid at the foreclosure sale. On May 16, O'Connor dismissed her lawsuit against the Servicer and the Trustee, possibly as part of a settlement agreement. On May 17, a court trial began on West Ridge's complaint in intervention. On May 18, the Trustee offered to tender interest on the sale funds to West Ridge, upon receipt of a tax form.
In a statement of decision, the trial court found that the foreclosure sale was not lawfully conducted because the Servicer and the Trustee violated the HBOR's dual tracking prohibition. The court further found that West Ridge's remedy was limited to the return of the purchase price plus interest. Because the purchase price had been repaid and interest had been tendered, the trial court found damages satisfied.
DISCUSSION
I. Rescission of the Foreclosure Sale
The parties dispute whether the foreclosure sale was properly rescinded because of the dual tracking violation. Respondents rely on a line of cases involving procedural defects in foreclosure sales. West Ridge argues these cases predate the HBOR, which governs this case and precludes cancellation of the sale. We review this question of law de novo. (Topanga and Victory Partners v. Toghia (2002) 103 Cal.App.4th 775, 779-780.)
"[Civil Code] [s]ections 2924 through 2924k 'provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust. The purposes of this comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.' [Citation.] [¶] The sale is deemed complete, for most purposes, when the auctioneer accepts the final bid, even though the trustee's deed is not given to the purchaser until a subsequent time. [Citation.] "The purchaser at a foreclosure sale takes title by a trustee's deed. If the trustee's deed recites that all statutory notice requirements and procedures required by law for the conduct of the foreclosure have been satisfied, a rebuttable presumption arises that the sale has been conducted regularly and properly; this presumption is conclusive as to a bona fide purchaser.' " (Millennium Rock Mortgage, Inc. v. T.D. Service Co. (2009) 179 Cal.App.4th 804, 809 (Millennium Rock).)
All undesignated section references are to the Civil Code.
"However, the presumption does not arise until there is a delivery of the deed. . . . '[P]rior to the delivery of the trustee's deed, there are no conclusive presumptions that the sale is valid. A sale may be challenged where there is an irregularity, unfairness, or fraud in the proceedings, and if facts are discovered by the trustee that allow[] an attack on the validity of the sale, the trustee has the authority to rescind the sale and on the same basis return any funds received to the purchaser, plus interest, and process another foreclosure.' " (Millennium Rock, supra, 179 Cal.App.4th at p. 809.) Thus, courts have authorized sale rescissions where it was discovered, prior to the delivery of the trustee's deed, that due to an "auctioneer's mistake," bidding was opened "with a credit bid that was only a fraction of what was actually owed on the subject property" (Millennium Rock, at pp. 806-807); that the homeowner and lender negotiated a repayment plan curing the default and orally agreed to postpone the foreclosure sale, but the trustee did not read the e-mail instructing it to postpone the sale (Residential Capital v. Cal-Western Reconveyance Corp. (2003) 108 Cal.App.4th 807, 811-812 (Residential Capital)); and that the trustee "mistakenly communicated to the auctioneer an incorrect opening bid by the lender that was less than 10 percent of the actual amount of the [opening credit] bid" (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 810 (Biancalana)).
These cases rely on "principles of interpretation of the statutory scheme setting forth the rules of trust deed nonjudicial foreclosure sales." (Residential Capital, supra, 108 Cal.App.4th at p. 821.) There is no indication in these cases that the statutes themselves indicated the appropriate remedy in the circumstances presented. Instead, "[t]he inquiry is whether, recognizing the purposes of the statutory scheme, there is a substantial defect in the statutory procedure that is prejudicial to the interests of the trustor and claimants." (Id. at p. 822.)
This statutory scheme was subsequently amended by the HBOR effective January 1, 2013. (See fn. 4, ante.) The HBOR's dual tracking provision in effect during the time relevant here provided that a servicer or trustee (among other entities) "shall not record a notice of default or notice of sale, or conduct a trustee's sale, while [a] complete first lien loan modification application is pending." (Former § 2923.6, subd. (c).) A servicer or trustee "shall not record a notice of default or notice of sale or conduct a trustee's sale until" the servicer "makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period . . . has expired"; "[t]he borrower does not accept an offered first lien loan modification within 14 days of the offer"; or "[t]he borrower accepts a written first lien loan modification" but then defaults. (Former § 2923.6, subd. (c).)
"Many provisions of the [HBOR] expire January 1, 2018, unless extended by subsequent legislation, whereas others continue in modified form after that date." (5 Miller & Starr, Cal. Real Estate (4th ed. 2018) § 13:185, fns. omitted.) We rely on the statutes in effect during the time relevant here.
The HBOR also includes enforcement provisions for certain material violations. (Former § 2924.12.) As relevant here, the HBOR provided: "If a trustee's deed upon sale has not been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation of Section . . . 2923.6," and the injunction "shall remain in place and any trustee's sale shall be enjoined until the court determines that the mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent has corrected and remedied the violation or violations giving rise to the action for injunctive relief. An enjoined entity may move to dissolve an injunction based on a showing that the material violation has been corrected and remedied." (Former § 2924.12, subd. (a), italics added.) After a trustee's deed upon sale has been recorded, servicers and trustees are liable for damages "where the violation was not corrected and remedied prior to the recordation of the trustee's deed upon sale." (Former § 2924.12, subd. (b).) However, a servicer or trustee "shall not be liable for any violation that it has corrected and remedied prior to the recordation of a trustee's deed upon sale . . . ." (Former § 2924.12, subd. (c).)
Unlike the statutory scheme in effect at the time of the foreclosure sales in Millennium Rock, Residential Capital, and Biancalana, the HBOR expressly provides that violations of its dual tracking provision can be corrected prior to recordation of the trustee's deed, and that at such time, the foreclosure sale can proceed. (See Monterossa v. Superior Court (2015) 237 Cal.App.4th 747, 754 (Monterossa) ["Where the trial court has found the plaintiff is likely to prevail on the claim of a 'material violation' of one of the provisions enumerated in subdivision (a)(1) of section 2924.12, and accordingly has issued a preliminary injunction, the ' mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent' can expeditiously correct and remedy the violation giving rise to the action for injunctive relief and then move to dissolve the preliminary injunction pursuant to subdivision (a)(2) of section 2924.12."]; Gilmore v. Wells Fargo Bank N.A. (N.D. Cal. 2014) 75 F.Supp.3d 1255, 1266 ["[I]f Plaintiff were to prevail on his HBOR claim, the sale would be enjoined until Wells Fargo remedied the violation. Once the violation is remedied, Wells Fargo would be free to proceed with the foreclosure."].) Permitting a foreclosure sale to proceed after a homeowner has been found ineligible for a loan modification is not inconsistent with the policy of the HBOR " 'to ensure that, as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, . . . loan modifications or other alternatives to foreclosure.' " (Valbuena, supra, 237 Cal.App.4th at p. 1272, fn. omitted.)
At oral argument, respondents argued a foreclosure proceeding must return to the status quo ante after correction of an HBOR error. Respondents rely on authority suggesting a new notice of trustee's sale may be required after a pre-sale injunction is dissolved. (See Monterossa, supra, 237 Cal.App.4th at pp. 750, 754 [where preliminary injunction enjoined trustee's sale after notice of sale recorded, lender "could simply comply with the statutory scheme and then, if necessary, move to dissolve the preliminary injunction in order to record a new notice of trustee's sale"].) A notice of trustee's sale must include the time of the sale. (5 Miller & Starr, Cal. Real Estate, supra, § 13:242.) The sale can only be postponed without new notice if an oral announcement of the new date and time is made at the original time of sale. (Id., § 13:245.) Accordingly, because a new notice of sale will likely be required after a pre-sale correction of an HBOR error in order to comply with this requirement, respondents' authority does not stand for the proposition that all foreclosure proceedings must return to the status quo ante after correction.
Moreover, the inquiry in the Millennium Rock, Residential Capital, and Biancalana line of cases asks "whether . . . there is a substantial defect in the statutory procedure that is prejudicial to the interests of the trustor and claimants." (Residential Capital, supra, 108 Cal.App.4th at p. 822, italics added; see also 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279, 1284 [" '[a] successful challenge to the sale requires evidence of a failure to comply with the procedural requirements for the foreclosure sale that caused prejudice to the person attacking the sale' " (italics added)].) Once a homeowner's loan modification request has been denied, the homeowner suffers no prejudice from the completion of the foreclosure sale. In contrast to a dual tracking violation, the prejudicial errors in the line of cases relied on by respondents were not amenable to correction absent a rescission of the sale. In Millennium Rock and Biancalana, the procedural errors resulted in a sale price for the foreclosed properties that was "gross[ly] inadequa[te]." (Biancalana, supra, 56 Cal.4th at p. 815; Millennium Rock, supra, 179 Cal.App.4th at p. 810.) In Residential Capital, the homeowner and lender agreed to a repayment plan curing the default before the foreclosure sale. (Residential Capital, supra, 108 Cal.App.4th at pp. 811-812.) Thus, the courts in those cases were not faced with the scenario presented here: a violation that was remedied after the foreclosure sale and therefore caused no prejudice, and a statutory scheme providing that foreclosure sales can proceed after such violations are cured.
Respondents contend that the purchase price here was inadequate. As West Ridge notes, respondents did not raise this issue—which involves questions of fact—in the trial court, and we decline to consider it now. (Eisenberg et al., Cal. Practice Guide: Civil Appeals & Writs (The Rutter Group 2017) ¶ 8:241 ["respondent can assert a new theory on appeal in order to establish that the judgment was correct on that theory unless doing so would unfairly prejudice appellant by depriving him or her of the opportunity to litigate an issue of fact"].) We note, moreover, that the purported inadequacy here—a high bid of approximately 60 percent of the fair market value—is a far cry from those found to be grossly inadequate in prior cases. (See Biancalana, supra, 56 Cal.4th at p. 815 [high bid "was less than 10 percent of the opening bid . . . that the beneficiary had submitted to the trustee"]; Millennium Rock, supra, 179 Cal.App.4th at p. 810 [high bid was "only one-seventh of the opening credit bid that should have been announced"].)
Accordingly, we conclude Millennium Rock, Residential Capital, and Biancalana do not authorize rescission of a foreclosure sale where a dual tracking violation has been corrected. The Servicer denied O'Connor's loan modification application at some point between September 14, 2015 and March 1, 2016. After the expiration of the time in which O'Connor could appeal that denial, the dual tracking violation was remedied and there was no basis to withhold the Trustee's Deed.
This conclusion renders it unnecessary to decide West Ridge's remaining contentions on this issue, including whether another HBOR provision prohibits the rescission (former § 2924.12, subd. (e) ["No violation of this article shall affect the validity of a sale in favor of a bona fide purchaser and any of its encumbrancers for value without notice."]), or whether respondents are judicially estopped from claiming the foreclosure sale violated the HBOR. We also express no opinion on the scenario—not presented here—where a dual tracking violation is discovered before the trustee's deed is recorded and the lender subsequently determines the homeowner is eligible for a loan modification. Finally, respondents note that the notice of trustee's sale included the statement that, if the Trustee is unable to convey title, a successful bidder's sole remedy is return of the funds paid. Because respondents do not argue this statement provides an alternative basis to affirm the judgment (and they did not rely on it in the trial court), we need not decide its relevance to this case.
II. West Ridge's Causes of Action
We now turn to how this conclusion impacts West Ridge's individual causes of action. As an initial matter, respondents contend that because the Trustee acted at the direction of the Servicer (and the new servicing entity), it has statutory immunity. (See § 2924, subd. (b) ["In performing acts required by this article, the trustee shall incur no liability for any good faith error resulting from reliance on information provided in good faith by the beneficiary regarding the nature and the amount of the default under the secured obligation, deed of trust, or mortgage."].) West Ridge's sole response is that any such immunity should be barred by judicial or equitable estoppel. The argument is unavailing. "Equity . . . may not be used to find liability where the result would nullify a contrary statute. '[A] court of equity will never lend its aid to accomplish by indirect means what the law or its clearly defined policy forbids to be done directly.' " (Tuthill v. City of San Buenaventura (2014) 223 Cal.App.4th 1081, 1088 [holding equitable principles cannot authorize liability where statute provides immunity].) Accordingly, we will affirm the judgment in favor of the Trustee.
We do not rely on section 47, and therefore need not decide whether, as West Ridge contends, the Trustee has forfeited any claim of immunity based on that statute.
We now turn to the specific claims. In finding for respondents on West Ridge's claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory and injunctive relief, the trial court relied on its conclusions that the rescission was proper and that West Ridge had received or been offered all the damages it was entitled to (a return of the purchase price plus interest). West Ridge argues the rescission was not proper, it was entitled to delivery of the Trustee's Deed or damages including the difference between the sale price and the fair market value of the Property (see § 3306), and judgment on these claims should therefore be reversed. Respondents do not assert any alternative bases to affirm the judgment on these claims, and we conclude our analysis requires they be reversed with respect to the Servicer. West Ridge also asserted its declaratory and injunctive relief claims against O'Connor, and we will reverse judgment on those claims as to her as well.
The trial court similarly ruled on West Ridge's claims for conversion and possession of personal property. Respondents argue West Ridge's remedy is limited to a return of the purchase price plus interest, an argument rejected by our analysis above. Respondents further argue West Ridge presented no evidence of respondents' wrongful intent. As West Ridge counters in its reply brief, such intent is not an element of the tort. (Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 208 [" ' "Conversion is a strict liability tort. The foundation of the action rests neither in the knowledge nor the intent of the defendant." ' "].) We will reverse judgment on these claims with respect to the Servicer.
With respect to the claims for negligent misrepresentation and violation of the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), West Ridge does not contend on appeal that the judgment as to these claims should be reversed. We therefore affirm the judgment on these claims. (Behr v. Redmond (2011) 193 Cal.App.4th 517, 538 ["failure to brief the . . . issue constitutes a waiver or abandonment of the issue on appeal"].)
Finally, respondents argue judgment on West Ridge's negligence claim should be affirmed because, among other reasons, West Ridge failed to demonstrate respondents owed West Ridge a duty of care. Respondents also argue judgment on West Ridge's unjust enrichment claim should be affirmed because West Ridge presented no evidence that respondents were unjustly enriched. West Ridge makes no reply to the arguments, and we therefore affirm judgment on these claims.
DISPOSITION
The judgment in favor of Residential Credit Solutions, Inc., with respect to West Ridge's claims for breach of contract, breach of the implied covenant of good faith, declaratory and injunctive relief, conversion, and possession of personal property is reversed and the trial court is directed to enter judgment for West Ridge on these claims. The judgment in favor of Joann O'Connor with respect to West Ridge's claims for declaratory and injunctive relief is reversed and the trial court is directed to enter judgment for West Ridge on these claims. In all other respects, the judgment is affirmed. The matter is remanded to the trial court for further proceedings not inconsistent with this opinion, including, but not limited to, a determination of damages. West Ridge is awarded its costs on appeal.
/s/_________
SIMONS, Acting P.J. We concur. /s/_________
NEEDHAM, J. /s/_________
BRUINIERS, J.