Medovoi v. American Savings and Loan Association

• Decision Date: 27 September 1976
• Citation: 62 Cal.App.3d 317,133 Cal.Rptr. 63
• Court: California Court of Appeals Court of Appeals
• Parties: Jorge Yoram MEDOVOI and Cepora Medovoi, Plaintiffs, Cross-Defendants and Appellants, v. AMERICAN SAVINGS AND LOAN ASSOCIATION, Defendant, Cross-Complainant, Respondent and Appellant, First Charter Financial Corporation, Defendant and Respondent. Civ. 46892.

Page 63

133 Cal.Rptr. 63

62 Cal.App.3d 317

Jorge Yoram MEDOVOI and Cepora Medovoi, Plaintiffs, Cross-Defendants and Appellants, v. AMERICAN SAVINGS AND LOAN ASSOCIATION, Defendant, Cross-Complainant, Respondent and Appellant First Charter Financial Corporation, Defendant and Respondent.

Civ. 46892.

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

Sept. 27, 1976.

As Modified Oct. 1, 1976.

For Opinion on Hearing, see 152 Cal.Rptr. 572.

Hillel Chodos, Beverly Hills, for plaintiffs, cross-defendants and appellants Medovoi.

Hahn, Cazier, Hoegh & Leff, Arthur Fine and Andrew E. Katz, Los Angeles, for defendant, cross-complainant, respondent and appellant American Savings and Loan Association and defendant and respondent First Charter Financial Corp. HANSON, Associate Justice.

Plaintiffs Jorge Yoram Medovoi and his wife Cepora Medovoi (hereinafter referred to collectively as 'Medovoi') appeal from a judgment denying them damages in this action for wrongful foreclosure instituted against American Savings and Loan Association (herein referred to as 'American') and First Charter Financial Corporation (hereinafter referred to as 'First Charter'). American appeals from that portion of the judgment denying it recovery on its cross-complaint for fraud and misrepresentation against the Medovoi as cross-defendants.

The Facts

In the spring of 1968 Medovoi purchased certain income producing property consisting of a 6-unit apartment complex situated in North Hollywood which foreclosure proceedings had been instituted by Master, holder of the second trust deed. Although Medovoi became record owners, they did not enter into a formal assumption of the first trust deed; when American learned about the transaction it offered to permit Medovoi to assume and upon Medovoi's failure to do so it accelerated the principal balance under its due-on-sale clause. This litigation resulted.

The record discloses the following series of events upon which the present litigation is based. On August 30, 1963, Mr. and Mrs. Leonard Davis, owners of the 6-unit apartment house which is the subject of this action, conveyed the property to Mr. and Mrs. Katz. In connection with their acquisition of the property, the Katzes executed a promissory note in the face amount of $43,750 at 6.6 percent interest per annum which was secured by a first deed of trust in favor of Mutual Savings and Loan Association of Alhambra in which the trustee was First Charter. American thereafter acquired Mutual Savings and Loan Association by merger and succeeded to all rights and obligations thereof.

The first deed of trust executed by the Katzes contained a due-on-sale clause which expressly permitted the beneficiary to 'accelerate' or call due and payable the entire remaining principal balance secured thereby should the property subject to the security interest be sold or otherwise transferred without the prior written consent of the beneficiary. Through a series of conveyances title to the property thereafter passed back to the Davises, thence to Leonard Davis Enterprises, Incorporated, and then to Mr. and Mrs. Martin W. and Carol R. Teague, who assumed the note and first trust deed. On September 14, 1964, Carol R. Teague became sole owner of record title and she transferred the property to James F. Witter who assumed the first trust deed obligation and also assumed or took subject to a note secured by a second trust deed which was owned by Master.

When Witter early in 1968 defaulted on the second trust deed obligation, Master instituted foreclosure proceedings and arranged to make payments to American on the first trust deed. Prior to the foreclosure by Master, American had consented to the assumption of the first trust deed by each of the holders of record title to the property on the payment of a nominal title transfer fee (which did not exceed $25) and without any increase in interest rate. However, sometime after Witter acquired the property and prior to Master's foreclosure thereon, American's policy with respect to the assumption of existing first trust deed obligations changed. As a result of increasing interest rates, American began to require a transferee to assume the obligation at the then-prevailing interest rate and to pay an additional assumption fee. An exception to this policy was customarily made by American when the transferee was the holder of a junior deed of trust who acquired title to the property by foreclosure. Such an owner was given a reasonable opportunity to dispose of the property without being required to pay an assumption fee, higher interest or any other charge so long as the obligations on the first trust deed were maintained without delinquency. Accordingly, when Master instituted foreclosure proceedings on the second deed of trust, Master was permitted by American to bring the first trust deed loan current and to maintain monthly payments whereon to protect its security interest without entering an assumption agreement.

Master completed foreclosure and acquired title by trustee's deed on May 14, 1968, but did not then or later notify American that foreclosure had been completed. Prior to formal foreclosure proceedings, Master obtained from Witter a deed in lieu of foreclosure. Thereupon, Master entered into an agreement with Stephen P. Gluck, doing business as Homeland Realty, authorizing that broker to sell the apartment building on certain terms and conditions, including the condition that the purchaser should assume the first trust deed obligation.

Medovoi offered to purchase the property through Gluck. Under the terms of the deposit receipt and escrow instructions executed by Medovoi, it was made known to them that American might require them to assume the note and first trust deed at a higher interest rate. In fact, Gluck informed them that American might terminate the obligation upon learning of the purchase, the terms of which required Gluck to take a third trust deed and Master to continue to carry a second trust deed on the property. Therefore, at the suggestion of Gluck and Master, Medovoi and Master entered an agreement, which was confirmed in a letter from Master to Medovoi prior to clase of escrow, that Medovoi should pay Master, which would in turn convey payments on the first trust deed to American. One of the reasons for this agreement was to prevent American from learning of the transfer of title to Medovoi.

Master did not inform American that it had acquired title to the property from Witter, and it did not respond to written requests relating to the status of title which American sent in May, June, July, and August 1968. From February 1968 through March 1969 American accepted checks sent by Master in payment on the first trust deed in the belief that Master as holder of the second deed of trust was continuing to make interim payments during foreclosure proceedings. However, on September 23, 1968, American received notice of an assignment of insurance policy on the property in favor of Medovoi. American rejected the policy endorsement and informed Medovoi that the property could not be transferred without American's consent to an assumption of first trust deed. Medovoi did not respond and the insurance company led American to believe their name on the policy was an error.

On March 10, 1969, American finally contacted Title Insurance and Trust Company and learned for the first time that Master had completed foreclosure and transferred the property to Medovoi. It thereupon sent an assumption application form to Medovoi. On March 18, 1969, Medovoi advised American that they were willing to assume the loan. Thereafter, however, they attempted to negotiate to keep the loan 'on its present terms' with the declared intent to sell the property as soon as possible to another buyer who would assume the loan. Meanwhile, Medovoi completed and returned the loan application sent to them by American. American by letter of April 29, 1969, advised them of the terms and conditions under which it would allow them to assume that obligation and enclosed a form of assumption agreement providing for 8.25 percent interest reflecting then prevailing rates of interest. Medovoi neither accepted the terms of the assumption proposed by American nor returned the assumption agreement.

American continued to accept monthly checks from Master during April, May and June 1969 because Medovoi advised American that they wished to arrange to assume the note and first trust deed. However, since Medovoi procrastinated, American by letter on June 10, 1969, notified both Witter as the last assuming owner and Medovoi as holders of record title that it elected to accelerate the balance due on its first deed of trust pursuant to the due-on-sale clause therein contained. American thereafter refused to accept any further monthly payments and rejected two tenders by Master of the $296 monthly payment due on July 1, 1969, on grounds that this amount was insufficient to constitute payment of the full principal balance which had been declared due and payable.

When the full principal balance remained unpaid, American, on or about July 8, 1969, caused a notice of default to be recorded by First Charter and began collecting rents pursuant to the assignment of rents contained in the first trust deed. Medovoi thereupon instituted the present action but they were unsuccessful in obtaining a preliminary injunction to restrain American from pursuing that remedy, and American continued to collect rents. Thereafter, Medovoi became unable to maintain payments on the first and junior encumbrances. On or about August 1969 Medovoi abandoned the property and defaulted on the second and third deeds of trust held by Master and Gluck, respectively. By agreement with American, Master completed foreclosure upon the property under its second trust deed in February 1970. Following the foreclosure, the property was sold to Mr. and Mrs. Fox on April 7, 1970....