OC Interior Servs., LLC v. Nationstar Mortg., LLC, D070680

• Citation: 7 Cal.App.5th 1318,213 Cal.Rptr.3d 395
• Decision Date: 31 January 2017
• Docket Number: D070680
• Court: California Court of Appeals
• Parties: OC INTERIOR SERVICES, LLC as Trustee, etc., Plaintiff and Respondent, v. NATIONSTAR MORTGAGE, LLC et al., Defendants and Appellants.

7 Cal.App.5th 1318
213 Cal.Rptr.3d 395

OC INTERIOR SERVICES, LLC as Trustee, etc., Plaintiff and Respondent,
v.
NATIONSTAR MORTGAGE, LLC et al., Defendants and Appellants.

D070680

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

Filed January 31, 2017

Dykema Gossett and Lukas Sosnicki, Brian H. Newman, Los Angeles, for Defendants and Appellants.

Songstad & Randall, Songstad Randall Coffee & Humphrey and William D. Coffee, Costa Mesa, for Plaintiff and Respondent.

213 Cal.Rptr.3d 399

O'ROURKE, J.

7 Cal.App.5th 1322

In this case, plaintiff OC Interior Services, Inc. (OCI) purchased real property knowing about a recorded default judgment in the chain of title that vacated the lien interest of the predecessor-in-interest to appellants Deutsche Bank National Trust Company, in Trust for the Harborview Mortgage Loan Pass-Through Certificates, Series 2007-7 (Deutsche Bank) and Nationstar Mortgage, LLC (Nationstar, together appellants). The default judgment was later adjudicated as void. The question presented is whether OCI, a purported bona fide purchaser for value, took title to the property subject to appellants' lien. The trial court found that OCI was a bona fide purchaser for value that took title to the property free of appellants' lien. We reverse as the void default judgment was a nullity for all purposes, including as against a purported bona fide purchaser for value.

7 Cal.App.5th 1323

FACTUAL AND PROCEDURAL BACKGROUND

The Loan and Default

In 2007, Roger Hart obtained a $2 million loan from Mirad Financial Group (Mirad) on real property located in Silverado, California (the property). A first deed of trust (First DOT) recorded against the property secured the loan. Mirad sold Hart's loan. The loan was securitized through a pooling and servicing agreement, which created a trust, of which Deutsche Bank serves as the trustee. The trust has owned the loan since 2007. In 2008, servicing rights to the loan were transferred to Aurora Loan Services, LLC (Aurora). Aurora informed Hart of this change.

The First DOT named Mirad as the lender and Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary and nominee for Mirad, and Mirad's successors and assigns. The First DOT expressly granted MERS the "legal title to the interests granted by Borrower in this Security Instrument" and the right to exercise all of the interests of the Lender (and its successors and assigns thereunder), including the right to foreclose. The First DOT provided that the original lender could sell the note and deed of trust, one or more times, without notice to the borrower and that the sale might result in a change of the loan servicer. In 2009, Hart defaulted on the loan.

The Hart Action

Hart communicated with Aurora regarding a forbearance agreement. At the same time, Hart, acting in propria persona, filed a verified complaint against Mirad to cancel the First DOT, loan and promissory note, and for an injunction preventing Mirad and its successors in interest from asserting any right to the property (the Hart Action). Hart did not allege a claim for quiet title. Hart did not name MERS or Aurora as defendants. Hart claimed that he had legally rescinded the loan under the Truth in Lending Act by delivering a notice of rescission to Mirad and that he had repaid the loan in full.

After Mirad failed to respond, Hart obtained a default judgment purporting to cancel and nullify the First DOT, and declaring that Mirad and any successor in interest to Mirad had no interest in the property. The default judgment expressly ordered Mirad and any successor in interest to record a conveyance of the property to Hart. On December 31, 2009, Hart recorded the default judgment.

Sale of the Property to OCI and Voiding the Default Judgment

After entry of the default judgment, Saeed Paymozd, the sole member of OCI,

213 Cal.Rptr.3d 400

offered to purchase the property. The purchase and sale agreement listed

7 Cal.App.5th 1324

the closing date as January 4, 2010, only days after Hart had recorded the default judgment. OCI paid $750,000 for the property, knowing the custom home on the property was worth $1.5 million. First American Title Insurance Company (First American) issued a preliminary title report and a title insurance policy to OCI in the amount of $937,500. Neither document referenced the First DOT.

Around the same time that he sold the property, Hart entered into a forbearance agreement with Aurora to forestall Aurora's foreclosure of the property. Hart later conveyed the property to Whitestar International Holdings Ltd. (Whitestar) through a recorded grant deed. Paymozd and Whitestar executed an addendum to the purchase agreement and an assignment of Paymozd's position in the purchase agreement to OCI. Thereafter, Hart defaulted on the forbearance agreement, leading to Aurora's discovery of the default judgment.

In August 2010, Mirad (who had changed its name to BrightGreen Home Loans, Inc.) filed a motion to set aside the default and default judgment in the Hart action under subdivision (d) of Code of Civil Procedure section 473, alleging that Hart served the summons and complaint at Mirad's former place of business and it had no notice of the action. The trial court granted Mirad's motion and ordered that the default judgment purporting to cancel the First DOT was void, vacated, and set aside. The trial court also allowed MERS to intervene in the Hart Lawsuit. MERS, however, later filed a notice of nonintervention, stating that the set aside of the default judgment rendered its intervention moot.

The Instant Action

Quality Loans Service Corp. (Quality), the trustee under the First DOT, recorded a Notice of Trustee Sale. About a year after purchasing the property, Paymozd found a copy of the Notice of Trustee's Sale posted to the door of the property. OCI filed the instant action to stop the foreclosure and obtain a determination that the property was not subject to the First DOT. The trial court later ordered the Hart lawsuit and the instant action consolidated for all purposes. In 2012, Aurora transferred the servicing rights for the loan to Nationstar.

OCI and appellants filed cross-motions for summary judgment, alternatively summary adjudication. The primary question was whether OCI took title to the property free of the First DOT based on the recorded default judgment purporting to cancel Mirad's interest in the property. As relevant here, OCI argued in its motion that it was entitled to judgment in its favor

7 Cal.App.5th 1325

because it qualified as a bona fide purchaser for value that relied on the recorded default judgment showing Mirad's interest in the property had been vacated.

In their motion, appellants argued that OCI's claims failed as a matter of law because, even assuming OCI qualified as a bona fide purchaser, a bona fide purchaser could not claim title based on the void judgment; thus, OCI took the property subject to the First DOT. Alternatively, assuming the court rejected its first argument, appellants asserted they were entitled to a judgment in their favor because the undisputed facts show OCI did not qualify as a bona fide purchaser as a matter of law.

The trial court denied appellants' motion; thus, by implication, the court concluded that OCI took title to the property free of the First DOT. The trial court granted OCI's motion for summary adjudication

213 Cal.Rptr.3d 401

of its first cause of action for declaratory relief, finding that OCI qualified as a bona fide purchaser as a matter of law that took title to the property free of the First DOT. OCI's claims against Hart proceeded to trial. The trial court ultimately found liability against Whitestar on OCI's breach of contract claim for damage to the property caused by a mudslide and awarded OCI $130,718 in damages.

DISCUSSION

I. General Legal Principles

Summary judgment is granted if all the submitted papers show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c) ; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850, 107 Cal.Rptr.2d 841, 24 P.3d 493.) The party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact. (Aguilar v. Atlantic Richfield Co. , supra , at p. 850, 107 Cal.Rptr.2d 841, 24 P.3d 493.) The burden of production then shifts to the opposing party to make a prima facie showing of the existence of a triable issue of material fact. (Ibid. )

We independently review the parties' supporting and opposing papers and apply the same standard as the trial court to determine whether there exists a triable issue of material fact. (City of San Diego v. U.S. Gypsum Co. (1994) 30 Cal.App.4th 575, 582, 35...