Bailey v. Citibank, N.A.

• Decision Date: 06 July 2021
• Docket Number: F079311
• Court: California Court of Appeals Court of Appeals
• Parties: Charles Scott BAILEY et al., Plaintiffs and Appellants, v. CITIBANK, N.A., Defendant and Appellant.

66 Cal.App.5th 335

280 Cal.Rptr.3d 546

Charles Scott BAILEY et al., Plaintiffs and Appellants,

v.CITIBANK, N.A., Defendant and Appellant.

F079311

Court of Appeal, Fifth District, California.

Filed July 6, 2021

Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, Catherine E. Bennett, Barry L. Goldner and R. Jeffrey Warren, Bakersfield, for Plaintiffs and Appellants.

Severson & Werson and Jan T. Chilton, San Francisco, for Defendant and Appellant.

OPINION

LEVY, Acting P.J.

In their complaint to quiet title, plaintiffs Charles Scott Bailey and Kimberley Elizabeth Bailey claimed to be rightful owners of certain real property located in Frazier Park, California (the property), based on their alleged adverse possession thereof for a five-year period. Before that period was completed, defendant Citibank, N.A. (Citibank), as successor in interest of a deed of trust recorded against the property long before plaintiffs' adverse possession began, foreclosed and acquired title to the property under the trustee's deed. When plaintiffs subsequently filed their complaint to quiet title, Citibank was named as the primary defendant. Citibank, however, failed to answer or otherwise respond to the complaint, and its default was entered. The trial court subsequently conducted an evidentiary hearing on plaintiffs' quiet title claim and concluded that title to the property was vested in plaintiffs, not Citibank. Citibank did not appear at the evidentiary hearing. Following the hearing, the trial court entered a judgment quieting title in plaintiffs' favor.

Thereafter, Citibank moved to set aside both the default and the judgment under the mandatory provisions of Code of Civil Procedure section 473, based on Citibank's attorney's affidavit of fault.¹ The trial court granted Citibank's motion, and the default and the judgment quieting title were set aside. Plaintiffs appeal from that order on the ground that no basis existed for potential relief under section 473 since Citibank's attorney was not retained to handle this case until after the default was entered. In response to plaintiffs' appeal, Citibank has filed a protective cross-appeal, arguing that even if relief under section 473 was unavailable, the judgment quieting title in plaintiffs' favor was erroneous as a matter of law and should be reversed. We agree with Citibank. Although the trial court erred in granting relief under section 473, which order is reversed, under Citibank's cross-appeal the underlying judgment quieting title is also reversed. Moreover, because the undisputed facts show Citibank is the owner of the property as a matter of law, on remand the trial court is instructed to enter a new judgment in Citibank's favor.

FACTS AND PROCEDURAL HISTORY

The 2005 Deed of Trust

We begin by describing the original ownership of the property prior to plaintiffs' commencement of their adverse possession. Robert Lifson and his wife, Toni Black, acquired the property by grant deed in 2004. In 2005, they executed a deed of trust to secure a $582,000 loan from Option One Mortgage Corporation. The deed of trust was recorded on September 1, 2005, and the beneficiary named therein was Option One Mortgage Corporation (the 2005 deed of trust). In 2008, Lifson and Black defaulted on the secured loan. A notice of default and election to sell under deed of trust was recorded. Lifson and Black responded by filing a series of bankruptcy petitions. Whether due to the bankruptcy filings or other reasons, no notice of trustee's sale was recorded at that time; the foreclosure process came to a halt and did not proceed for nearly a decade.

Plaintiffs' Adverse Possession Commences

Meanwhile, in 2013, plaintiffs observed the property was unoccupied. On June 28, 2013, plaintiffs took possession of the property without permission and claimed it as their own. Their possession of the property was open and obvious. Since that time, plaintiffs have stored equipment and trailers on the property, kept chickens, pigs and goats there, made repairs to the residence, and paid the assessed property taxes each year when due.

Citibank Becomes Successor of the 2005 Deed of Trust

The 2005 deed of trust, which continued to constitute a lien or encumbrance on the property, was assigned by the original beneficiary and subsequently assigned two more times. In 2017, under a duly recorded assignment, Citibank became the successor in interest of the 2005 deed of trust. Thereafter, Citibank, as the "present Beneficiary under said Deed of Trust," recorded a substitution of trustee. The new trustee proceeded to record a rescission of the former 2008 notice of default, and then recorded a new, operative notice of default. In February 2018, a notice of trustee's sale was recorded. The trustee's sale was conducted on April 2, 2018, and Citibank, the foreclosing beneficiary, became the owner of the property pursuant to the trustee's deed (or the "TRUSTEE'S DEED UPON SALE") dated April 4, 2018, which was duly recorded on April 12, 2018.

Plaintiffs' Complaint to Quiet Title

On July 16, 2018, approximately three months after Citibank's foreclosure was completed, plaintiffs filed their complaint to quiet title. The complaint contained a single cause of action seeking to quiet title to the property in plaintiffs' favor based on their alleged adverse possession. Plaintiffs alleged they had openly and adversely possessed the property for five years, as of June 28, 2013, and had also paid the property taxes during that five-year period.

Citibank Serves a Notice to Quit

On July 28, 2018, plaintiffs forwarded to their attorney a "Notice to Quit" that had been served on plaintiffs by Citibank's eviction or unlawful detainer attorneys (eviction counsel), dated July 25, 2018. Plaintiffs' attorney responded by contacting Citibank's eviction counsel and (i) informed them of plaintiffs' pending lawsuit seeking to quiet title to the property, and also (ii) provided a copy of plaintiffs' complaint to quiet title and the related lis pendens. Upon receiving this information, Citibank's eviction counsel indicated they were unaware of plaintiffs' claim of ownership and stated they would have to confer with their client. However, no further communication was received from Citibank's eviction counsel.

Citibank's Default Taken

Plaintiffs' complaint was served by mail on Citibank on October 3, 2018. When Citibank failed to answer or otherwise respond to the complaint, plaintiffs requested and obtained Citibank's default. On November 14, 2018, default was entered against Citibank. Notice of entry of default was served on Citibank on November 15, 2018.

Evidentiary Hearing on Plaintiffs' Quiet Title Claim

On February 13, 2019, the trial court conducted an evidentiary hearing on plaintiffs' quiet title claim. There was no live testimony at the hearing. The evidence presented by plaintiffs included the complaint, the declaration of plaintiffs' attorney Barry Goldner and attached exhibits, the declarations of plaintiffs (both Charles Scott Bailey and Kimberley Elizabeth Bailey), and a request for judicial notice of numerous recorded documents. The recorded documents included the 2005 deed of trust, the assignment of the 2005 deed of trust to Citibank, and the April 2018 trustee's deed. Plaintiffs also submitted a trial brief in support of their request for judgment. After hearing the evidence, the trial court took the matter under submission.

Days later, the trial court ruled that plaintiffs are the owners in fee simple of the real property described in the complaint, not Citibank. Accordingly, a written judgment quieting title in plaintiffs' favor was entered by the trial court. Notice of entry of judgment was filed and served on February 21, 2019.

Citibank's Motion for Relief under Section 473

On March 11, 2019, Citibank served and filed an ex parte application to set aside the judgment under section 473. In support of the application, Citibank submitted a declaration by its attorney, Jeremy Katz, asserting that he was assigned to the case on January 10, 2019, and at that time learned of the prior default taken by plaintiffs against Citibank. However, due to attorney Katz's admitted failure to take any action or to calendar the matter or otherwise monitor the situation, the default prove-up hearing took place without Citibank's appearance and judgment was entered.

Attorney Katz's declaration was obviously for the purpose of obtaining relief based on an attorney affidavit of fault under section 473. In light of the importance of the content of the declaration to the question of whether relief was properly granted, we shall quote portions of it verbatim.

In relevant part, Katz stated in his declaration as follows: "1. I was assigned to be the handling attorney for this matter on January 10, 2019. [¶] 2. On January 10, 2019, upon being referred this matter, I was informed that Plaintiffs had sent the summons and complaint to Citibank's unlawful detainer counsel in July 2018 and that Plaintiffs had taken Citibank's default. My intent at the time was to first contact Plaintiffs' counsel to see if they would stipulate to set aside the default, as that would be the simplest and most efficient way to resolve the issue. If Plaintiff's counsel would not stipulate to set aside the default, my intent was to affirmatively seek relief from the entry of default. And, if the court was not inclined to set aside the entry of default, my intent was to actively monitor the Court's docket so that Citibank could still appear and present rebuttal evidence at any subsequent quiet title prove-up hearing. Although the proof of service on file with the Court indicates that service was effectuated on Citibank in October 2018 by mail with return receipt requested, it is currently unknown why the complaint was not properly processed in order to ensure that Citibank made an appearance prior to any attempted default. [¶] 3. Accordingly, I made personal notes at that time to investigate...