Matson v. S.B.S. Trust Deed Network

• Decision Date: 05 March 2020
• Docket Number: D074442
• Court: California Court of Appeals Court of Appeals
• Parties: Matthew MATSON et al., Plaintiffs and Appellants, v. S.B.S. TRUST DEED NETWORK et al., Defendants and Respondents.

46 Cal.App.5th 33

259 Cal.Rptr.3d 526

Matthew MATSON et al., Plaintiffs and Appellants,

v.S.B.S. TRUST DEED NETWORK et al., Defendants and Respondents.

D074442

Court of Appeal, Fourth District, Division 1, California.

Filed March 5, 2020

Scali Rasmussen; Halbert B. Rasmussen, Jeffrey W. Erdman and Madeleine K. Lee, Costa Mesa, for Plaintiffs and Appellants.

Mulvaney Barry Beatty Linn & Mayers; Everett G. Barry and Christopher B. Ghio, San Diego, for Defendants and Respondents.

BENKE, Acting P. J. Plaintiffs Matthew Matson and Matson SDRE Group, LLC (collectively plaintiffs) purchased a deed of trust at a nonjudicial foreclosure sale. S.B.S. Trust Deed Network (SBS) was the trustee and Bank of Southern California, N.A. (BSC) (referred to collectively as defendants) was the beneficiary of the deed of trust. Matson, relying on a software application called PropertyRadar, believed that the deed of trust was in first position on the property. He purchased the deed of trust for $502,000 at the foreclosure auction, then learned that the lien was in second position, with a much lower fair market value than the price paid.

Plaintiffs filed a first amended complaint against defendants for rescission of the sale and declaratory relief, relying on Matson's unilateral mistake of fact and the unconscionable price he paid for the deed of trust. The parties filed cross-motions for summary judgment. The court granted summary judgment for defendants. Plaintiffs have appealed. We affirm the judgment.

BACKGROUND

Undisputed Facts

The deed of trust that is the subject of this lawsuit was recorded in 2007, securing a Small Business Administration loan in the original amount of $475,000. It was in second place, as a first deed of trust had been recorded in 2004 and assigned to Bank of America in 2016.

SBS, the trustee, recorded a notice of default and election to sell on June 10, 2016. BSC, the beneficiary, notified SBS that a total of $414,510.62 was due on the note and deed of trust. BSC authorized a flat opening bid of $71,000 on its behalf. A "flat bid" means that the beneficiary did not authorize any increases in its bid. SBS recorded a notice of sale indicating a sale date of February 1, 2017, later continued to March 1, 2017. The notice of sale stated, "The sale will be made, but without covenant or warranty, express or implied, regarding title, possession, or encumbrances, to pay the remaining principal sum of the note(s) secured by the Deed of Trust ...." It also gave notice to bidders that they were bidding on a lien, which might be a junior lien. The notice encouraged bidders to investigate the lien through the county recorder's office or a title insurance company.

In January 2017, Matson learned about the property and potential foreclosure from PropertyRadar. The PropertyRadar user agreement stated that, "You should not rely on these Sites and the information and resources contained on these Sites as a replacement or substitute for any professional, financial, legal or other advice or counsel."¹

Matson did not follow up with any further investigation on the deed of trust until the morning of the sale, March 1, 2017, when he saw notice of the sale on PropertyRadar again. PropertyRadar identified the loan as being in position "1." Based on his review of the information on PropertyRadar, Matson believed that the loan being foreclosed was a refinance of the original purchase loan, and therefore that it was in first position to the title. Defendants disputed this, pointing out that the PropertyRadar profile also showed the 2004 deed of trust securing the original purchase loan by Countrywide Home Loans and its 2016 assignment of the deed of trust to Bank of America. We accept both Matson's statement of his belief and defendants' response that the profile contained sufficient information to ascertain that the 2004 loan remained in first position.

Matson obtained a 94-page profile on the property from a title company about an hour before the sale. Matson did not read the full property profile. He reviewed only the notice of sale and verified that the amount of the loan on the about-to-be foreclosed deed of trust was consistent with the information listed on PropertyRadar. Matson called a telephone number that he believed to be SBS, but it was actually a separate company, Superior Default Services (SDS). SBS had hired SDS to conduct the foreclosure sale. Matson asked an SDS representative if "the first had cleared for sale," and the representative responded, "Yes, it's cleared for sale." Matson never asked, and the representative never confirmed whether the deed being sold at auction was a first-priority lien. Matson went to the foreclosure sale with cashier's checks totaling $505,000. There were two other bidders at the sale, successively raising their bids from BSC's opening bid of $71,000 until plaintiffs' bid of $502,000 was accepted as the winning bid. A BSC representative was surprised by the price paid at the auction because she knew there was limited equity available in the property.

Matson tendered his cashier's checks, and received and executed a receipt of funds. A disclaimer on the receipt of funds stated, "Buyer and Buyer's Agent agree that neither the Trustee nor its Agents make any express or implied warranties with respect to the real property being purchased.... Buyer and Buyer's Agent acknowledge that it has not relied upon any representation by the Trustee or its Agent. Buyer and Buyer's agent agree that the real property is being sold on an "AS IS" basis. Buyer and Buyer's Agent agrees [sic ] that all funds received by Trustee or its Agents are non-refundable for any reason." Plaintiffs contend that the receipt of funds does not contain any disclaimers about the title of the property. Matson thought the disclaimers applied only to the physical condition of the property.

Later that evening, Matson contacted a real estate agent who had an active listing on the property. As a result of the contact, Matson learned that the deed of trust he purchased might be in second position, not first. Matson tried to stop payment on the cashier's checks the next day. He signed declarations under penalty of perjury stating that the cashier's checks had been stolen. Nonetheless, the bank paid all three cashier's checks.

Matson also sent a letter to defendants stating his belief that he had been defrauded and did not wish to purchase the deed of trust. He sent a formal notice of rescission on March 9. When the trustee mailed the trustee's deed upon sale to Matson on March 10, Matson returned it with a notice of rejection. The trustee however, recorded the deed and a preliminary change of ownership. The SBS employee who recorded the deed had never before recorded a deed over a buyer's objection, but the SBS employee most qualified to testify about normal practice and procedure said that SBS had recorded trustee's deeds and preliminary change of ownership forms numerous times.

Ruling at Trial

The trial court found no basis for rescission because plaintiffs could not show irregularity, unfairness or fraud in the nonjudicial foreclosure notice and sale process itself. Plaintiffs' mistakes were based on reliance on the PropertyRadar software and calls to SDS, mistakenly thought to be SBS. Moreover, plaintiffs had a property report from a title company, but failed to read the entire document. None of these information sources was part of the sales process. The court further stated, at the hearing on the summary judgment motions, that (1) Matson made a mistake in failing to adequately investigate before engaging in the foreclosure sale, which was known to be a risky enterprise; (2) Matson had a property report that contained information on all the deeds of trust on the property but did not fully read it; and (3) Matson took the risk of engaging in a sale without fully investigating the terms of the sale or failing to take the time to understand them.

The court granted summary judgment for defendants and dismissed the complaint with prejudice. Plaintiffs then filed this appeal.

DISCUSSION

Plaintiffs claim they are entitled to a judgment of rescission because they made a unilateral mistake of fact that resulted in an unconscionable loss to them and a corresponding unconscionable windfall to defendants. We conclude that plaintiffs are not entitled to rescission of the nonjudicial foreclosure sale because there was no irregularity in the sale. Under the common law claim of unilateral mistake, plaintiffs bore the risk of mistake, and thus relief cannot be granted on that ground.

Standard of Review

We review the record and the decision of the trial court de novo to determine if facts not subject to triable dispute warrant judgment for the moving party. ( Biancalana v. TD Services Co. (2013) 56 Cal.4th 807, 813, 156 Cal.Rptr.3d 437, 300 P.3d 518 ( Biancalana ).) To prevail, defendants must show that plaintiffs have not produced material facts that could be interpreted to support their claim. In other words, defendants must show that an element of the plaintiffs' claim cannot be established with all the available facts. ( Code Civ. Proc., § 437c, subd. (c) ; Kahn v. East Side Union High School Dist. (2003) 31 Cal.4th 990, 1002–1003, 4 Cal.Rptr.3d 103, 75 P.3d 30 ( Kahn ).)

The facts here are not disputed in any material way. The parties dispute only the conclusions of law that can be drawn from the facts.

Nonjudicial Foreclosure Sales

" Civil Code sections 2924 through 2924k^{[2 ]} ... govern nonjudicial foreclosure sales pursuant to a power of sale contained in a deed of trust. ‘The purposes of this comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser. [Citations....