Paterra v. Hansen

• Decision Date: 27 April 2021
• Docket Number: D076661
• Citation: 64 Cal.App.5th 507,279 Cal.Rptr.3d 77
• Court: California Court of Appeals Court of Appeals
• Parties: Natalie PATERRA, Plaintiff and Respondent, v. Jon M. HANSEN et al., Defendants; ABS REO Trust II, Petitioner and Appellant.

64 Cal.App.5th 507

279 Cal.Rptr.3d 77

Natalie PATERRA, Plaintiff and Respondent,

v. Jon M. HANSEN et al., Defendants;ABS REO Trust II, Petitioner and Appellant.

D076661

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

Filed April 27, 2021

Parker & Zubkoff, David M. Parker, Larkspur, and David J. Zubkoff for Petitioner and Appellant.

JW Howard Attorneys, John W. Howard, San Diego, and Andrew G. Nagurney; Williams Iagmin and Jon R. Williams, San Diego, for Plaintiff and Respondent.

No appearance by Defendants.

HALLER, Acting P. J. ABS REO Trust II (ABS) appeals from an order denying its motion to correct/vacate the portion of a prior quiet title judgment adjudicating the rights of a defaulting party (Clarion Mortgage Capital, Inc. (Clarion)) despite that Clarion had not been served with the operative amended complaint and the court did not hold a hearing on the plaintiff's claims against Clarion.

We conclude the court erred in denying ABS's motion. ABS had standing to bring this motion and it met its burden to show the prior judgment was void as to Clarion. We reverse the order and remand with directions for the court to grant ABS's motion and strike the portions of the prior judgment relating to Clarion.

OVERVIEW

This case involves competing interests in a single residential condominium property (Property). Although the underlying dispute was relatively straightforward, its resolution became complicated because of the unusual nature of the initial transaction, the multiple subsequent conveyances and encumbrances, and the piecemeal fashion in which the disputes were litigated. Some of these complexities bear on our analysis of the parties' appellate contentions. To help guide the reader through the procedural thicket, we begin by providing an overview of the relevant facts, arguments, and the reasons for our conclusions.

In 1997, plaintiff Natalie Paterra owned the Property and conveyed title to a third party under a "reverse mortgage" type arrangement. Paterra understood this third party would obtain a second secured loan on the Property and retransfer the property back to her after certain events occurred. During the next eight years, title to the Property was conveyed between and among several individuals (without notice to Paterra), and in October 2006, the then-owners obtained a $480,000 loan from Clarion, secured by a deed of trust on the Property (Clarion Deed of Trust). The Clarion Deed of Trust was recorded on November 1, 2006.

Ten years later, in 2016, Paterra (who had continued in possession of the Property) brought a quiet title action against these transferees and Clarion (which had since dissolved). Clarion was served with the first amended complaint, but did not answer. Soon after, the court entered Clarion's default. Paterra then filed a second amended complaint against all of the defendants including Clarion, but did not serve Clarion with this second amended complaint.

The court then held a trial on Paterra's quiet title claims against one of the defendants, Jon Hansen (the other defendants had defaulted or stipulated to judgment). At trial, Paterra presented evidence supporting her claims, and Hansen presented evidence in defense. During trial, Hansen's counsel repeatedly (and unsuccessfully) argued that Mortgage Electronic Registration Systems, Inc. (MERS) was an indispensable party because it was a named beneficiary and nominee on the Clarion Deed of Trust. Paterra's counsel opposed MERS's joinder, but said he understood MERS would not be bound by the judgment.

At the end of the trial but before judgment was entered, MERS moved to intervene stating it had just learned of the lawsuit. The court denied the motion, but stated MERS would not be bound by the judgment as it was not a named party. In denying the motion, the court also confirmed the trial had been "limited to adjudicating the competing interests" of Hansen and Paterra and that the evidentiary hearing did not "address the [Clarion] Deed of Trust." Paterra's counsel agreed with this fact.

In an amended final judgment, the court (Judge Joel Wohlfeil) found Paterra proved her claims entitling her to quiet title against all defendants, including Clarion (the February 2018 Amended Judgment). This judgment said it was "not binding or conclusive" on persons claiming an interest through the Clarion Deed of Trust if those persons had not been named defendants in the action and that it did not apply to interests encumbering the property before November 6, 2006 (the Clarion Deed of Trust had been recorded on November 1, 2006).

The next month, MERS recorded an assignment of the Clarion Deed of Trust to ABS as beneficiary. When ABS then sought to foreclose against Paterra's property under the Clarion Deed of Trust, Paterra brought a new lawsuit against MERS and ABS, seeking to preclude the foreclosure based, in part, on the February 2018 Amended Judgment against Clarion. In various orders, the court in this later lawsuit (Judge Ronald Styn) agreed with Paterra that the February 2018 Amended Judgment "cut off" MERS's rights to assign the Clarion Deed of Trust, and ruled that "ABS's challenge[s] to the validity of the [February 2018 Amended Judgment] as against Clarion are not properly raised in this action. " (Italics added.)

Within two months, ABS brought a motion in Paterra's earlier lawsuit (the action before us), asking Judge Wohlfeil to "correct" the portion of the February 2018 Amended Judgment finding in Paterra's favor on her quiet title claim against Clarion. ABS raised several grounds for the motion, including the judgment against Clarion was void because Paterra never served Clarion with the operative second amended complaint and the court had no power or authority to adjudicate rights against Clarion because it had not held an evidentiary hearing on Paterra's claims against Clarion as required by Code of Civil Procedure section 764.010.¹

Paterra opposed the motion. After considering the parties' briefing and extensive written submissions, the court denied the motion on three primary grounds: (1) ABS had no standing because it failed to present sufficient evidence to support its claim it obtained an assignment of Clarion's rights in May 2017; (2) Paterra was not required to serve the second amended complaint on Clarion because the complaint made no substantive changes; and (3) the judgment was "not prohibited by section 764.010" because it was not entered "until after a trial was commenced and a decision was rendered."

ABS appeals. We determine the court erred in denying ABS's motion because the February 2018 Amended Judgment was void as to Clarion for three independent reasons. First, Clarion was never served with the second amended complaint, and this complaint differed materially from the first amended complaint with respect to Clarion. Second, the trial court acknowledged it did not hold a hearing to adjudicate Paterra's rights against Clarion on the Deed of Trust, and under section 764.010, this meant the judgment against Clarion was void. Third, Paterra's failure to name MERS, the beneficiary on the recorded Clarion Deed of Trust when Paterra filed her quiet title lawsuit, rendered the judgment void as to Clarion. Thus, we reverse the order and remand with directions for the court to grant ABS's motion and delete the portion of the judgment finding in Paterra's favor on her claim against Clarion. In reaching this conclusion, we offer no opinion on the merits of the current claims between Paterra and MERS/ABS.

FACTUAL AND PROCEDURAL SUMMARY

We first describe the underlying proceedings. We then discuss ABS's motion to correct/vacate the judgment as to Clarion and the court's ruling on that motion.

I. Underlying Proceedings

A. Relevant Background²

In 1990, Paterra purchased the Property for $250,000, with an $80,000 down payment and the rest financed through a note secured by a first deed of trust.

In the late 1990's, Paterra was having problems meeting her mortgage obligations, and met with Hansen and Ronald Dunham, who represented themselves as principals of Affiliated Financial Professionals (AFP) or a similarly named entity. After the meeting, Paterra entered into a type of a "reverse-mortgage" agreement with AFP (the AFP 1997 Agreement), in which Paterra agreed to transfer title to AFP to permit AFP to secure a second secured loan on the Property. In exchange, AFP agreed to make payments on Paterra's existing mortgage and related property taxes, and reconvey the property when the second secured loan was paid off. Paterra could then reacquire the property from AFP by paying AFP the difference in the first-mortgage balance from when AFP took over the payments and when it finished repaying the new loan. Under this arrangement, the parties agreed Paterra would retain possession of the Property, including the ability to rent it and retain all rental payments, and was responsible for paying the homeowner's insurance and association fees.

In connection with this agreement, Paterra executed a grant deed conveying the property to AFP (1997 AFP Grant Deed), which was recorded. Unbeknownst to Paterra, AFP then initiated a series of transfers of the Property that were not expressly permitted by the AFP 1997 Agreement. First, AFP deeded the property to a third party (John Miller), who obtained a $206,400 loan from Downey Savings and Loan Association secured by a second deed of trust on the Property (Downey Deed of Trust). The property was then conveyed in a series of transactions, resulting in recorded title ownership in the name of Hansen and Dunham's trust. Hansen and Dunham then obtained a new loan for $480,000 from Clarion secured by the Clarion Deed of Trust on the Property, and used the Clarion loan proceeds to pay off the note underlying the Downey Deed of Trust on November 6, 2006. The Clarion Deed of Trust stated that Clarion was the lender, and MERS was the "beneficiary" and the "nominee" for Clarion and its successors and assigns.

Two...