Conundrum: You find out that the assignee of your California Deed of Trust never acknowledged and recorded the deed of trust with the clerk of courts, and now wants to enforce the mortgage in order to foreclose. You dig around and find these California Civil Code sections below. Should you attack the assignee’s standing to foreclose?
Answer: No. In California, the assignee of beneficial interest in a mortgage security instrument must duly acknowledge and record the assignment in order to have the right to force a foreclosure sale. The assignee of a beneficial interest in a deed of trust need not record the assignment in order to force a foreclosure sale.
Discussion: A mortgage differs from a deed of trust. Both secure the note, such that they entitle the owner of beneficial interest in the note (or agent) to enforce the note by foreclosure and forcible sale of the property. However, a mortgage requires enforcement through judicial action – the foreclosing party must sue the borrower for breaching the note. By contrast, a deed of trust involves a trustee who receives notice of the breach and of fulfillment of conditions precedent from the owner of beneficial interest in the note (or holder or agent), then orders the sale of the property held in trust. A mortgage operates as a lien with title remaining in the borrower (technically, it goes to the mortgagee for purposes of a mortgage only), and a deed of trust conveys title to the trustee until the borrower has retired the debt.
It seems axiomatic that owner of beneficial interest in the note (oobi) may, in the event the borrower breaches the note, enforce the note through foreclosure and forcing the sale of the property securing the debt. Furthermore, it seems axiomatic that the oobi may assign the security instrument, to another party who may enforce the security instrument by forcing a foreclosure sale.
But… always verify what the law means by looking at how the courts have opined.
For reference see Calvo v HSBC Bank, 199 CAL.APP.4TH 118 (CAL. APP. 2011)
California Civil Code Section
2932. A power of sale may be conferred by a mortgage upon the mortgagee or any other person, to be exercised after a breach of the obligation for which the mortgage is a security.
2932.5. Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.
2924. (a) Every transfer of an interest in property, other than in trust, made only as a security for the performance of another act, is to be deemed a mortgage, except when in the case of personal property it is accompanied by actual change of possession, in which case it is to be deemed a pledge. Where, by a mortgage created after July 27, 1917, of any estate in real property, other than an estate at will or for years, less than two, or in any transfer in trust made after July 27, 1917, of a like estate to secure the performance of an obligation, a power of sale is conferred upon the mortgagee, trustee, or any other person, to be exercised after a breach of the obligation for which that mortgage or transfer is a security, the power shall not be exercised except where the mortgage or transfer is made pursuant to an order, judgment, or decree of a court of record, or to secure the payment of bonds or other evidences of indebtedness authorized or permitted to be issued by the Commissioner of Corporations, or is made by a public utility subject to the provisions of the Public Utilities Act, until all of the following apply: (1) The trustee, mortgagee, or beneficiary, or any of their authorized agents shall first file for record, in the office of the recorder of each county wherein the mortgaged or trust property or some part or parcel thereof is situated, a notice of default. That notice of default shall include all of the following: (A) A statement identifying the mortgage or deed of trust by stating the name or names of the trustor or trustors and giving the book and page, or instrument number, if applicable, where the mortgage or deed of trust is recorded or a description of the mortgaged or trust property. (B) A statement that a breach of the obligation for which the mortgage or transfer in trust is security has occurred. (C) A statement setting forth the nature of each breach actually known to the beneficiary and of his or her election to sell or cause to be sold the property to satisfy that obligation and any other obligation secured by the deed of trust or mortgage that is in default. (D) If the default is curable pursuant to Section 2924c, the statement specified in paragraph (1) of subdivision (b) of Section 2924c. (2) Not less than three months shall elapse from the filing of the notice of default. (3) Except as provided in paragraph (4), after the lapse of the three months described in paragraph (2), the mortgagee, trustee, or other person authorized to take the sale shall give notice of sale, stating the time and place thereof, in the manner and for a time not less than that set forth in Section 2924f. (4) Notwithstanding paragraph (3), the mortgagee, trustee, or other person authorized to take sale may record a notice of sale pursuant to Section 2924f up to five days before the lapse of the three-month period described in paragraph (2), provided that the date of sale is no earlier than three months and 20 days after the recording of the notice of default. (5) Until January 1, 2018, whenever a sale is postponed for a period of at least 10 business days pursuant to Section 2924g, a mortgagee, beneficiary, or authorized agent shall provide written notice to a borrower regarding the new sale date and time, within five business days following the postponement. Information provided pursuant to this paragraph shall not constitute the public declaration required by subdivision (d) of Section 2924g. Failure to comply with this paragraph shall not invalidate any sale that would otherwise be valid under Section 2924f. This paragraph shall be inoperative on January 1, 2018. (6) No entity shall record or cause a notice of default to be recorded or otherwise initiate the foreclosure process unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest. No agent of the holder of the beneficial interest under the mortgage or deed of trust, original trustee or substituted trustee under the deed of trust may record a notice of default or otherwise commence the foreclosure process except when acting within the scope of authority designated by the holder of the beneficial interest. (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. In performing the acts required by this article, a trustee shall not be subject to Title 1.6c (commencing with Section 1788) of Part 4. (c) A recital in the deed executed pursuant to the power of sale of compliance with all requirements of law regarding the mailing of copies of notices or the publication of a copy of the notice of default or the personal delivery of the copy of the notice of default or the posting of copies of the notice of sale or the publication of a copy thereof shall constitute prima facie evidence of compliance with these requirements and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value and without notice. (d) All of the following shall constitute privileged communications pursuant to Section 47: (1) The mailing, publication, and delivery of notices as required by this section. (2) Performance of the procedures set forth in this article. (3) Performance of the functions and procedures set forth in this article if those functions and procedures are necessary to carry out the duties described in Sections 729.040, 729.050, and 729.080 of the Code of Civil Procedure. (e) There is a rebuttable presumption that the beneficiary actually knew of all unpaid loan payments on the obligation owed to the beneficiary and secured by the deed of trust or mortgage subject to the notice of default. However, the failure to include an actually known default shall not invalidate the notice of sale and the beneficiary shall not be precluded from asserting a claim to this omitted default or defaults in a separate notice of default. (f) With respect to residential real property containing no more than four dwelling units, a separate document containing a summary of the notice of default information in English and the languages described in Section 1632 shall be attached to the notice of default provided to the mortgagor or trustor pursuant to Section 2923.3.
COURT OF APPEAL OF CALIFORNIA, SECOND DISTRICT. EIGHT.
CALVO V. HSBC BANK USA, N.A.
199 CAL.APP.4TH 118 (CAL. APP. 2011)
- DECIDED SEPT. 13, 2011
EUGENIA CALVO, Plaintiff and Appellant, v. HSBC BANK USA, N.A., as Trustee, etc., Defendant and Respondent.
Court of Appeal of California, Second District. Eight.
September 13, 2011.
Appeal from the Superior Court of Los Angeles County, No. BC415545, Mark V. Mooney, Judge. *119
Dennis Moore for Plaintiff and Appellant.
Houser Allison, Eric D. Houser, Robert W. Norman, Jr., and Carrie N. Heieck for Defendant and Respondent.