Saturday, December 24, 2011

FYI: Cal App Ct Holds Defaults Judgments In Quiet Title Actions Prohibited Under Calif Law, Evidentiary Hearing Required

The California Court of Appeal, Fourth District, recently held that
California law prohibits the entry of default judgments in quiet title
actions, and requires an evidentiary hearing in which both plaintiffs and
defendants can participate.

A copy of the opinion is available at:

A loan servicer purchased an individual condominium unit in its name at a
foreclosure sale. Plaintiff Harbour Vista, LLC purportedly was the lessee
of the land on which the entire condominium complex had been built. The
prior owner of the condominium unit had entered into a sublease with
Harbour Vista to rent the land occupied by the condominium unit, but was
eventually evicted by Harbour Vista for failure to pay the rent pursuant
to the sublease agreement. Harbour Vista filed a quiet title action
against HSBC and others, alleging a right to the condominium unit itself.

The servicer initially did not answer or otherwise respond to the
complaint, and Harbour Vista took a default. The servicer appeared at the
case management conference, notified the trial court of its intent to file
a motion to set aside the default, and asked to have that motion heard
before the court ruled on the default judgment. Nevertheless, without
holding an evidentiary hearing, the trial court entered a default judgment
for quiet title in favor of Harbour Vista.

The servicer filed a motion to set aside the default and vacate the
default judgment. The trial court denied the motion, as well as a
subsequent motion for reconsideration. The servicer appealed.

The Court of Appeal reversed and remanded, concluding that the lower court
erred by entering a default judgment in a quiet title action and had
improperly failed to conduct an evidentiary hearing.

As you may recall, California Code of Civil Procedure Sections 760.010, et
seq. govern the California quiet title process. Section 764.010 of that
statutory scheme provides in pertinent part, "The court shall not enter
judgment by default but shall in all cases require evidence of plaintiff's
title and hear such evidence as may be offered respecting the claims of
any of the defendants. . . . The court shall render judgment in
accordance with the evidence and the law."

Relying on what it referred to as the "unequivocal" statutory language,
the Court of Appeal concluded that Section 746.010 is an absolute
prohibition on the entry of default judgments in all quiet title actions
and that the statute additionally requires a court to hear evidence of the
parties' respective claims in every quiet title case.

In so holding, the court declined to follow Yeung v. Soos, 119 Cal. App.
4th 576 (2004), which held that Section 764.010 does not preclude the
entry of default judgments in quiet title actions, but only requires a
plaintiff to satisfy a higher standard of evidence than the prima facie
evidence ordinarily required following a defendant's default. In this
case, the appellate court determined instead that under Section 764.010,
the defendant retains the right, even after default, to participate in the
case and to present evidence before a judgment may be entered.

In addition, in light of the adversarial nature of quiet title actions,
the Court of Appeal noted that unless defendants are allowed to present
their own evidence, a court would be hampered in discharging its duty to
"render judgment in accordance with the evidence and the law," as required
by Section 764.010. The court stressed, however, that while allowing a
defaulting defendant the opportunity to participate in a quiet title
judgment hearing is unusual, the plaintiff may still take a defendant's
default, thereby putting the defendant at a distinct disadvantage.

Further, in addressing the type of hearing required by Section 764.010,
the Court of Appeal followed the determining factors set forth in TJX
Companies, Inc. v. Superior Court, 87 Cal. App. 4th 747 (2001)(plain
meaning of words used in the statute, context, statutory scheme, role of
judge, procedural remedies, validity of pending motions), and ruled that a
quiet title judgment requires a hearing in open court and that Section
764.010 implicitly permits evidentiary objections.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.