Ferguson v. Avelo Mortg., LLC

• Decision Date: 14 September 2011
• Docket Number: No. B223447.,B223447.
• Citation: 195 Cal.App.4th 1618,126 Cal.Rptr.3d 586,11 Cal. Daily Op. Serv. 6559
• Court: California Court of Appeals Court of Appeals
• Parties: Susan L. FERGUSON et al., Plaintiffs and Appellants, v. AVELO MORTGAGE, LLC, Defendant and Respondent.

126 Cal.Rptr.3d 586

11 Cal. Daily Op. Serv. 6559

2011 Daily Journal D.A.R. 7892Ordered Not PublishedPreviously published at: 195 Cal.App.4th 1618

Susan L. FERGUSON et al., Plaintiffs and Appellants,

v.AVELO MORTGAGE, LLC, Defendant and Respondent.

No. B223447.

Court of Appeal, Second District, Division 4, California.

June 1, 2011.

As Modified June 20, 2011.

Review Denied Sept. 14, 2011.^*

Susan L. Ferguson, in pro. per, and for Plaintiffs and Appellants.

McCarthy & Holthus, James M. Hester, Sasan Mirkarimi, San Diego; and Melissa Coutts for Defendant and Respondent.

EPSTEIN, P.J.

Joseph Huynh obtained a loan to purchase a house. Appellants, Susan L. Fergusonand Brent V. Barry, were tenants at the time of the purchase.¹ Huynh executed a promissory note, secured by a deed of trust on the house. Respondent, Avelo Mortgage, LLC, was assigned the beneficial interest under the deed of trust by the original beneficiary, Mortgage Electronic Registration Systems (MERS). Prior to the assignment, respondent executed a substitution of trustee replacing the original trustee with Quality Loan Service Corporation (Quality). Quality then initiated a nonjudicial foreclosure proceeding against Huynh and respondent purchased the house at a trustee sale. Subsequently, Huynh executed a quitclaim deed in favor of appellants. Appellants sued respondent to quiet title. Respondent demurred, arguing that appellants must plead tender of the full amount due on the original purchase loan before seeking to vacate the foreclosure sale. The trial court sustained respondent's demurrer without leave to amend and dismissed appellants' suit. On appeal, appellants argue they need not plead tender because they are challenging the legality of the foreclosure sale, not a procedural irregularity. We do not agree.

FACTUAL AND PROCEDURAL SUMMARY

In November 2006, Huynh purchased a house (the property) in Burbank, California. Appellants were tenants at the time of the purchase. Huynh executed a deed of trust to secure a $600,000 loan from New Century Mortgage Corporation (New Century) in order to purchase the property. The deed of trust named New Century as the lender, MERS as lender's nominee and beneficiary under the deed of trust, and First American Title as the trustee. The deed of trust empowered the trustee with the power of sale. In June 2007, Huynh executed a grant deed to the Huynh Fairview Trust, with Trust Holding Service Company (THS) as trustee.

On August 2, 2007, respondent executed a substitution of trustee, replacing First American Title with Quality. The next day, Quality, as an agent of the beneficiary under the deed of trust, recorded a notice of default against Huynh for failing to make payments due on the loan. On the same day, Quality recorded an election to sell under the deed of trust. The August 2, 2007 substitution of trustee was not recorded until November 9, 2007. On August 22, 2007, MERS assigned all beneficial interest under the deed of trust to respondent. The assignment was recorded on August 30, 2007.

Meanwhile, Huynh made no loan payments and Quality executed and delivered a notice of trustee sale on November 4, 2007. The notice of sale was recorded on November 9, 2007. Huynh did not object to the foreclosure. Quality conducted a nonjudicial foreclosure sale and respondent subsequently purchased the property in July 2008 for $400,000. The sale deed was recorded, indicating that the amount of unpaid debt plus costs was $663,128.65.

On June 27, 2009, Huynh executed a quitclaim deed on the property, in favor of appellants. The quitclaim deed was recorded on July 1, 2009.

On October 8, 2009, appellants brought an action against respondent to quiet title. They also sued Huynh for fraud and THS and 10 Doe defendants for rent skimming. Of these, only respondent is a party in this appeal. Respondent demurred, asserting that appellants failed to state a cause of action because neither they nor Huynh tendered the full amount due on the loan. The trial court sustained the demurrer without leave to amend, holding that appellants' quiet title action is based on a claim that the foreclosure was wrongful, and therefore, appellants must plead tender before seeking to set aside the foreclosure sale.² An order of dismissal was entered by the court on May 4, 2010. This timely appeal followed.

DISCUSSION

I

Respondent argues this appeal is premature because the trial court entered an order of dismissal but did not enter a formal judgment. Generally, an appeal may be taken from a judgment (Code Civ. Proc., § 904.1), which is a “final determination of the rights of the parties in an action or proceeding.” (Code Civ. Proc., § 577.) Code of Civil Procedure section 581d provides that “[a]ll dismissals ordered by the court shall be in the form of a written order signed by the court and filed in the action and those orders when so filed shall constitute judgments and be effective for all purposes, and the clerk shall note those judgments in the register of actions in the case.” (See also In re Sheila B. (1993) 19 Cal.App.4th 187, 197, 23 Cal.Rptr.2d 482 [an order of dismissal is a judgment for all intents and purposes and is generally appealable].) We treat the trial court's order of dismissal as an appealable order and refer to it as such throughout our opinion.

II

When a demurrer is sustained by a trial court on the basis of a failure to state a cause of action, we review the allegations de novo to determine whether the complaint states facts sufficient to constitute a cause of action under any legal theory. ( Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126, 119 Cal.Rptr.2d 709, 45 P.3d 1171.) In doing so, we give the complaint a reasonable interpretation, reading it as a whole and viewing its parts in context. ( Balikov v. Southern Cal. Gas Co. (2001) 94 Cal.App.4th 816, 819, 114 Cal.Rptr.2d 614.) Relevant matters that were properly the subject of judicial notice may be treated as having been pled. ( Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6, 40 Cal.Rptr.3d 205, 129 P.3d 394.)³ If no liability exists as a matter of law, the order sustaining the demurrer is affirmed. ( Ibid.)

Where, as here, a demurrer is sustained without leave to amend, we also review the decision to deny leave to amend under the abuse of discretion standard, even when no request to amend the pleading was made. (Code Civ. Proc., § 472c, subd. (a); see also Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081, 6 Cal.Rptr.3d 457, 79 P.3d 569.) In doing so, we decide whether there is a reasonable possibility that the defect can be cured by amendment. The burden is on the plaintiff to demonstrate that reasonable possibility. ( Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

Here, appellants sought to quiet title against respondents and set aside the trustee sale at which respondents purchased the property. In order to state a viable cause of action for quiet title, a complaint must include: “(a) A description of the property that is the subject of the action .... [¶] (b) The title of the plaintiff as to which a determination under this chapter is sought and the basis of the title .... [¶] (c) The adverse claims to the title of the plaintiff against which a determination is sought. [¶] (d) The date as of which the determination is sought .... [¶] (e) A prayer for the determination of the title of the plaintiff against the adverse claims.” (Code Civ. Proc., § 761.020.) To bring an action to quiet title a plaintiff must allege he or she has paid any debt owed on the property. ( Shimpones v. Stickney (1934) 219 Cal. 637, 649, 28 P.2d 673[“[A] mortgagor cannot quiet his title against the mortgagee without paying the debt secured.”].)

The power of sale in a deed of trust allows a beneficiary recourse to the security without the necessity of a judicial action. (See Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249, 26 Cal.Rptr.3d 413.) Absent any evidence to the contrary, a nonjudicial foreclosure sale is presumed to have been conducted regularly and fairly. (Civ.Code, § 2924.) However, irregularities in a nonjudicial trustee's sale may be grounds for setting it aside if they are prejudicial to the party challenging the sale. (See Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1097–1098, 106 Cal.Rptr.2d 443; see also Angell v. Superior Court (1999) 73 Cal.App.4th 691, 700, 86 Cal.Rptr.2d 657 [“ ‘In order to challenge the sale successfully there must be evidence of a failure to comply with the procedural requirements for the foreclosure sale that caused prejudice to the person attacking the sale.’ ”].) Setting aside a nonjudicial foreclosure sale is an equitable remedy. ( Lo v. Jensen, supra, 88 Cal.App.4th at p. 1098, 106 Cal.Rptr.2d 443 [“A debtor may apply to a court of equity to set aside a trust deed foreclosure on allegations of unfairness or irregularity that, coupled with the inadequacy of price obtained at the sale, mean that it is appropriate to invalidate the sale.”].) A court will not grant equitable relief to a plaintiff unless the plaintiff does equity. (See Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 578–579, 205 Cal.Rptr. 15; see also 13 Witkin, Summary of Cal. Law (10th ed. 2005) Equity, § 6, pp. 286–287.) Thus, “[i]t is settled that an action to set aside a trustee's sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security.” ( Arnolds Management Corp. v. Eischen, supra, 158 Cal.App.3d at p. 578, 205 Cal.Rptr. 15; see also FPCI RE–HAB 01 v. E & G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022, 255 Cal.Rptr. 157 [rationale behind tender rule is that irregularities in foreclosure sale do not damage plaintiff where plaintiff could not redeem property had sale procedures been proper].)

However, a tender may not be required where it would be inequitable to do so. (See ...