Solomonv.EC Closing Corp.

C073813 (Cal. Ct. App. Aug. 20, 2018)



SEAN SOLOMON, Plaintiff and Appellant, v. EC CLOSING CORPORATION et al., Defendants and Respondents.

NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published,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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 75565)

Plaintiff Sean Solomon contends the trial court erroneously denied his application for default judgment and dismissed the operative complaint in his suit against defendants Cal-Western Reconveyance Corporation (Cal-Western), Lender Processing Services, Inc., and LSI Title Company (collectively defendants). He challenges the trial court's finding he failed to state a cause of action relating to the foreclosure of his property because he did not demonstrate a substantial defect in the chain of title. Finding no merit in plaintiff's contentions, we affirm.

This case is the second appeal concerning plaintiff and his home mortgage. In the other appeal, we affirmed the trial court's dismissal of plaintiff's complaint as to other defendants named in the document. (Solomon v. E-Loan, Inc. et al. (June 2, 2017, C072288) [nonpub. opn.].) This appeal concerns the defaulting defendants named in the same complaint.



The Loan

In September 2004, plaintiff and his wife borrowed $254,500 from E-Loan, Inc., to refinance their existing home mortgage. Plaintiff and his wife executed a deed of trust and the deed recorded the same month. Under the deed of trust E-Loan, Inc. was listed as the Lender, Lender's First Choice was listed as the trustee, and Mortgage Electronic Registration Systems, Inc. (MERS) was listed as the beneficiary and the nominee for E-Loan, Inc. Soon after, E-Loan, Inc. transferred plaintiff's loan to Wells Fargo Home Mortgage, who mailed plaintiff a letter informing him of the transfer.

This figure was taken from the loan document plaintiff and his wife signed and attached as an exhibit to the second operative complaint. In his exhibit list, plaintiff describes this document as the "Sham Note and deed of Trust." Exhibit 1 to the operative complaint is purportedly the "Original Loan Documents;" however, no exhibit 1 was made part of the appellate record. Exhibit 5 to the operative complaint is purportedly "Plaintiffs True Loan." The document attached is entitled "LOAN ESCROW INSTRUCTIONS" and appears to be a contract for title insurance with Lenders First Choice for a coverage liability of $250,500 and not the contract for the loan subject to this lawsuit. In any event, the contract is not signed by plaintiff or his wife. The loan settlement statement plaintiff attached as exhibit 14 also provides for a loan amount of $254,500 but a dispersed amount of $250,470.01. Accordingly, we reject plaintiff's argument he owed $250,500 under the loan contract.

Plaintiff and his wife continued to make their loan payments until December 2009 when they "rescinded the transaction" due to inconsistencies plaintiff discovered in the property's chain of title. Plaintiff then filed suit against Wells Fargo Home Mortgage and E-Loan, Inc., among others, which was removed to federal court. Defendants were not named in the federal complaint as originally filed but were later joined, with both Cal-Western and LSI Title Company filing declarations of nonmonetary status in response.

In March 2010, while plaintiff's federal case was pending but before defendants had been joined, Cal-Western recorded a "NOTICE OF DEFAULT AND ELECTION TO SELL UNDER DEED OF TRUST" against plaintiff's property. The notice of default listed Cal-Western as "the original trustee, the duly appointed substituted trustee, or acting as agent for the trustee or beneficiary" named in plaintiff's deed of trust. MERS was listed "AS NOMINEE FOR E-LOAN, INC as beneficiary."

The next month, MERS, as beneficiary, recorded a substitution of trustee replacing Lenders First Choice as the original trustee with Cal-Western. The document was dated March 3, 2004, but notarized on April 23, 2010.

In June 2010, Cal-Western "as duly appointed trustee" recorded a notice of trustee's sale. Two months later, MERS recorded an assignment of deed of trust assigning all beneficial interest under the deed to Wells Fargo Bank, NA.


Plaintiff's Lawsuit

Following resolution of plaintiff's federal case, he filed the operative complaint in state court. Plaintiff alleged 17 causes of action against various companies involved in the refinancing of his home loan, including Wells Fargo Home Mortgage and E-Loan, Inc. He alleged they "induced" him into executing a " 'SHAM' 'STRAW NOTE' " in place of the legitimate contract he thought he was signing to refinance his existing home loan. As to defendants, plaintiff alleged Cal-Western acted as the "preferred 'foreclosure trustee' " of Wells Fargo Home Mortgage and, with LSI Title and Lender Processing Services, Inc., wrongfully foreclosed his property. To that end, he alleged defendants lacked the authority to enforce the note against him and foreclose on his property because the notice of default, substitution of trustee, and assignment of deed of trust were defective.

Defendants failed to answer plaintiff's complaint and did not seek relief from default. As a result, plaintiff applied for a default judgment. The court denied the application finding plaintiff's complaint failed to state a cause of action because it did not demonstrate a substantial defect in the chain of title entitling him to relief. The court then dismissed plaintiff's complaint. Plaintiff appeals.


This matter was assigned to the panel as presently constituted in July 2018.

Plaintiff contends the trial court erred when dismissing his complaint and denying his application for default judgment. We disagree.

A default is a permissible tactical move by a defendant, and "[t]here is no penalty for defaulting." (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 281-282.) A default admits only the well-pleaded allegations in a complaint, " ' " 'but not contentions, deductions or conclusions of fact or law.' " ' " (Id. at p. 281.) Hence, a default judgment cannot stand if the allegations fail to state a cause of action against a defaulting defendant. (Id. at p. 282.)

Plaintiff argues the complaint demonstrates defendants wrongfully initiated foreclosure proceedings because they lacked the authority to do so. Specifically, he contends the substitution of trustee, dated six months before he took out the loan, was defective since it substituted the trustee to a nonexistent deed of trust. In analyzing the complaint, we give it a reasonable interpretation and read it as a whole with all parts considered in their context. We are not concerned with the plaintiff's ability to prove the allegations or with any possible difficulties in making such proof. We are not bound by the construction placed by the trial court on the pleadings; instead, we make our own independent judgment. (Herman v. Los Angeles County Metropolitan Transportation Authority (1999) 71 Cal.App.4th 819, 824.)

"A beneficiary or trustee under a deed of trust who conducts an illegal, fraudulent or willfully oppressive sale of property may be liable to the borrower for wrongful foreclosure. [Citation.] A foreclosure initiated by one with no authority to do so is wrongful for purposes of such an action." (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 929, fn. omitted.) A notice of default, which initiates foreclosure proceedings, may be filed for record only by "[t]he trustee, mortgagee, or beneficiary, or any of their authorized agents." (Civ. Code, § 2924, subd. (a)(1).)

Further section references are to the Civil Code unless otherwise indicated.

The notice of default and election to sell recorded by Cal-Western provides that Cal-Western was acting as either the trustee or an agent of the beneficiary -- MERS. Plaintiff argues MERS was never the beneficiary and did not have authority to initiate foreclosure proceedings. Instead, Wells Fargo Bank was the beneficiary as shown in the notice of default. Not so. The notice of default instructs plaintiff to contact Wells Fargo Bank to inquire about his payments, but describes MERS as the beneficiary. Moreover, the deed of trust itself provides that MERS is the beneficiary. Because Cal-Western was acting as an agent for MERS, it had authority to initiate foreclosure proceedings by recording the notice of default.

" '[MERS] is a private corporation that administers a national registry of real estate debt interest transactions. Members of the MERS System assign limited interests in the real property to MERS, which is listed as a grantee in the official records of local governments, but the members retain the promissory notes and mortgage servicing rights. The notes may thereafter be transferred among members without requiring recordation in the public records. [Citation.] [¶] Ordinarily, the owner of a promissory note secured by a deed of trust is designated as the beneficiary of the deed of trust. [Citation.] Under the MERS System, however, MERS is designated as the beneficiary in deeds of trust, acting as "nominee" for the lender, and granted the authority to exercise legal rights of the lender.' " (Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 816, fn. 6.) --------

Once MERS recorded the substitution of trustee, naming Cal-Western as trustee, any question as to its authority was made clear. "From the time the substitution is filed for record, the new trustee shall succeed to all the powers, duties, authority, and title granted and delegated to the trustee named in the deed of trust." (§ 2934a, subd. (a)(4).) Once recorded the substituted trustee is deemed to have had authority from the date of execution and "the substitution shall constitute conclusive evidence of the authority of the substituted trustee or his or her agents to act pursuant to this section." (Id., subd. (d).) The substitution of trustee was recorded and indicated an execution date prior to the Cal-Western's recording of the notice of default. Under the relevant statutory provisions, this establishes conclusive evidence Cal-Western had the authority to initiate foreclosure proceedings and conduct a nonjudicial foreclosure sale of plaintiff's property. (Yvanova v. New Century Mortgage Corp., supra, 62 Cal.4th at p. 926 [the trustee holds a power of sale and may be demanded to sell the property by the beneficiary].)

Neither was the substitution of trustee invalid. Plaintiff argues the substitution of trustee was notarized and recorded in April 2010 but purportedly signed in March 2004, before the creation of his loan, and is thus invalid. Plaintiff's argument "assumes a notary must acknowledge a document at the time it is executed and any delay between the execution and acknowledgment renders the document invalid. That is not the law and [plaintiff] do[es] not cite any authority to support that proposition. Nothing requires a notary to acknowledge a document at the same time it is executed, and even a lengthy delay between the execution of the document and its acknowledgment does not invalidate the document. (Wilson v. Pacific Coast Title Ins. Co. (1951) 106 Cal.App.2d 599, 602, [assignment of beneficial interest in deed of trust validly transferred title despite notary acknowledging assignment nearly two years after it was executed]; Pedersen v. Greenpoint Mortgage Funding, Inc. (E.D.Cal 2012) 900 F.Supp.2d 1071, 1083 [same].)" (Rossberg v. Bank of America (2013) 219 Cal.App.4th 1481, 1496.)

The fact the execution date predates plaintiff's signing of the loan document does not change our conclusion. Plaintiff takes issue only with Cal-Western's conduct occurring in 2010 when the notice of default was recorded and the foreclosure sale occurred. Cal-Western recorded the notice of default as an agent to the known beneficiary, and one month later "succeed to all the powers" of trustee with the recording of the substitution of trustee. (§ 2934a, subd. (a)(4).) Although dated six years prior, the substitution of trustee did not have the effect of legitimizing any of Cal-Western's prior conduct. Indeed, Cal-Western recorded the notice of default as an agent of the beneficiary, a permissible way to initiate foreclosure proceedings. (§ 2924a, subd. (a)(1).)

Citing Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, plaintiff argues the trial court was precluded from considering as fact that MERS was the beneficiary and Cal-Western was the trustee as purported in the recorded documents because he disputed the validity of those instruments. Plaintiff's reliance on Poseidon is misplaced.

"A court may take judicial notice of something that cannot reasonably be controverted, even if it negates an express allegation of the pleading." (Poseidon Development, Inc. v. Woodland Lane Estates, LLC, supra, 152 Cal.App.4th at p. 1117.) Courts may also take judicial notice of facts that can be deduced from these types of documents, not simply of their existence and recordation. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 265.) For example, in Poseidon the appellate court concluded the trial court properly took judicial notice of an assignment of a deed of trust as well as its legal effect. (Poseidon, at p. 1118.) There, the parties did not dispute the validity of the assignment. The parties only disputed the legal effect of the assignment. In Poseidon, the court noted the assignment's "legal effect could not be clearer" and was therefore "not reasonably subject to dispute." (Ibid.) Further, the Poseidon court stated the argument that the "trial court erred in taking judicial notice of the effect of the First Assignment is comparable to saying that, while a court may take judicial notice of a judicial decision awarding damages, it may not take judicial notice that the effect of that decision is to make the prevailing party entitled to the damages awarded." (Ibid.)

Here, plaintiff disputes the validity of the substitution of trustee recorded by MERS. He does so relying on the date written on the document compared to the dates the document was notarized and the subject loan originated. As discussed, however, these allegations do not establish the substitution was invalid. Accordingly, the court properly considered the legal effect of the substitution of trustee.


The judgment is affirmed. In the interests of justice, the parties shall bear their own costs. (Cal. Rule of Court, rule 8.278(a)(5).)


Robie, J. We concur: /s/_________
Blease, Acting P. J. /s/_________
Duarte, J.