The Court of Appeals of California, Fourth District, recently held that a party who purchased the collateral property through a homeowners association foreclosure sale is a "successor in interest" under California Civil Code § 2924c, and therefore has the right to cure any payment defaults and reinstate the loan, and has standing to bring a wrongful foreclosure action.
A copy of the opinion is available at: Link to Opinion
A borrower obtained a loan secured by a deed of trust on his property. The beneficiary later assigned its interest. The borrower's homeowners association subsequently foreclosed on the property.
A third party -- the plaintiff in this action -- purchased the property from the homeowners association's foreclosure, and obtained her interest via a grant deed that did not mention the deed of trust. Later, the trustee and mortgage servicer recorded a notice of trustee's sale, scheduled a foreclosure sale, and listed the unpaid balance due. Prior to the sale, Plaintiff attempted to bring the loan current but the servicer did not provide any information because the Plaintiff was not the borrower.
Plaintiff filed a lawsuit against the defendants asserting causes of action of wrongful foreclosure, and declaratory relief, and sought an accounting, and an injunction. The trustee and servicer defendants demurred to the complaint. The trial court sustained the defendants' demurrer and held that Plaintiff did not plead the elements of wrongful foreclosure because he did not allege tender and did not have standing under California Civil Code § 2924c ("Section 2924c") to reinstate the loan. Plaintiff appealed and argued that he did have standing and was entitled to reinstate the loan under Section 2924(c).
On appeal, the Fourth District examined Section 2924c which provides, in relevant part:
Whenever all or a portion of the principal sum of any obligation secured by deed of trust or mortgage on real property . . . has, prior to the maturity date fixed in that obligation, become due or been declared due by reason of default in payment of interest or of any installment of principal, . . . the trustor or mortgagor or their successor in interest in the mortgaged or trust property or any part thereof . . . may pay to the beneficiary or the mortgagee . . . the entire amount due, at the time payment is tendered, . . . other than the portion of principal as would not then be due had no default occurred, and thereby cure the default theretofore existing, and thereupon, all proceedings theretofore had or instituted shall be dismissed or discontinued and the obligation and deed of trust or mortgage shall be reinstated and shall be and remain in force and effect, the same as if the acceleration had not occurred.
The Court of Appeals noted that although "successor in interest" was not defined by the statute, the Plaintiff and other purchasers at foreclosure sales are considered successors in interest because their title can be traced back to the foreclosure sale through the chain of title. See Epps v. Lindsey (2017) 10 Cal. App. 5th Supp. 1, 5.
Based on the foregoing the Fourth District held that Plaintiff, as the current owner of record, clearly was a successor in interest to the property. Supporting this position was the case of Munger v. Moore (1970) 11 Cal. App. 3d 1. In Munger, a mortgage loan went into default and the trustee exercised a power of sale. Prior to the sale, plaintiff — at that point the title owner but not a party to the mortgage contract — tendered the amount necessary to cure the default, but the trustee refused to accept the tender and sold the property. Ultimately, the court in Munger held the plaintiff in that case had standing to assert a right of reinstatement under Section 2924c.
Defendants argued that Plaintiff is a "stranger" to the loan, and that the right to reinstate the delinquent loan arose solely pursuant to the terms of the deed of trust. The Court of Appeals disagreed and noted that the right to reinstate claimed by Plaintiff arose directly from Section 2924c.
Notably, Plaintiff eventually paid off the entirety of the original balance due, and therefore agreed she no longer had a cause of action for wrongful foreclosure. However, the Court of Appeals agreed she could amend her complaint to allege a violation of Section 2924c.
Accordingly, the judgment of dismissal was reversed as to the defendants with instructions for the trial court to enter an order sustaining the demurrer with leave to amend.
Ralph T. Wutscher
Maurice Wutscher LLP
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