Romo v. Stewart Title of California, A064772

• Citation: 35 Cal.App.4th 1609,42 Cal.Rptr.2d 414
• Decision Date: 23 June 1995
• Docket Number: No. A064772,A064772
• Court: California Court of Appeals
• Parties: , 95 Daily Journal D.A.R. 8320 Endolia ROMO, Plaintiff and Appellant, v. STEWART TITLE OF CALIFORNIA, Defendant and Respondent.

Page 414

42 Cal.Rptr.2d 414

35 Cal.App.4th 1609, 95 Daily Journal D.A.R. 8320

Endolia ROMO, Plaintiff and Appellant, v. STEWART TITLE OF CALIFORNIA, Defendant and Respondent.

No. A064772.

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

June 23, 1995.

Certified for Partial Publication ^*

[35 Cal.App.4th 1611] Bruce Pritzker, Larkspur, for appellant/plaintiff.

Ronald R. Rossi, Liccardo, Rossi, Sturges & McNeil, San Jose, for respondent/defendant.

DOSSEE, Associate Justice.

This is the second appeal before us in this action by a home seller against an escrow agent for various misdeeds which allegedly

occurred in connection with the sale of plaintiff's house. In the first appeal we held that the trial court properly concluded that plaintiff's claims for impairment of security were barred by plaintiff's full credit bid at the trustee's sale. But we also held that plaintiff's full credit bid did not necessarily bar plaintiff's other claims of damages, and we remanded for further proceedings. On remand, defendant moved for summary judgment, arguing that all other [35 Cal.App.4th 1612] claims asserted by plaintiff were related to the impairment of her security and, hence, were barred by the full credit bid. The trial court agreed and granted defendant's motion for summary judgment. Plaintiff appeals.

FACTS

In 1981, plaintiff decided to sell her home in Daly City to move to Valley Springs, California. She retained James Rabb as her real estate agent, who submitted a purchase offer on her behalf for a house in Valley Springs, California. That offer was eventually accepted by the sellers. Because plaintiff's purchase offer was contingent upon the sale of her Daly City home, Rabb offered to buy that house from plaintiff through his realty company. Escrow was opened for both transactions with defendant Stewart Title of California.

The purchase agreement between plaintiff and the named buyers (Tim and Carol Dews) called for a purchase price of $123,000, consisting of a $12,000 cash deposit, a new loan to be secured by a first deed of trust, with plaintiff to carry a loan of $12,300 payable over 5 years secured by a second deed of trust. ¹

Both transactions closed. In connection with the sale of plaintiff's Daly City home, a loan for $98,400 secured by a first deed of trust was issued by Great Western. Accordingly, plaintiff received two promissory notes from the buyers, one for $12,300 and another for $18,470, secured by a second and a third deed of trust, respectively.

From the Great Western loan proceeds, $61,100 was credited to plaintiff's purchase of the Valley Springs house. Plaintiff received approximately $23,460 in cash. In October 1981, plaintiff moved into her new home in Valley Springs.

By November 1981 plaintiff was concerned that no payments had been made on the promissory notes. She consulted an attorney, who exercised the power of sale under the third deed of trust and instituted nonjudicial foreclosure proceedings. At the trustee's sale, plaintiff's attorney entered a bid on her behalf in the amount of $20,363, which represented the full amount of the loan secured by the third deed of trust ($18,470) plus interest and costs. Plaintiff received a trustee's deed on the property. She then listed the property for sale for $140,000.

By this time, the loan from Great Western was also in default. In March 1982 Great Western gave notice of default to plaintiff, reciting arrearages due of $6,850. Plaintiff did not pay off the arrearages, nor did she take any other steps to avoid foreclosure. Great Western eventually foreclosed, and plaintiff lost the property.

Procedural History

Plaintiff sued the real estate broker (Rabb), his affiliated real estate companies, the purchasers of her Daly City home (the Dewses), and the escrow agent (Stewart Title). We are concerned in this appeal only with plaintiff's claims against Stewart Title.

Plaintiff alleges that the entire sale transaction on her Daly City home was a fiction engineered by Rabb. The Dewses never took possession of the Daly City house and never paid any money on any of the three loans. Plaintiff alleges that Rabb was not a licensed broker and that the documents purportedly signed by the purchasers were forged.

With respect to Stewart Title, plaintiff's claims center on the fact that the seller's (plaintiff's) escrow instructions do not reflect the $18,470 loan carried by plaintiff and secured by the third deed of trust. The seller's Plaintiff admitted at the first trial and the documentary exhibits confirm that among the papers signed by plaintiff as "read and approved" at closing was a copy of the buyers' promissory note to plaintiff for $18,470. It is undisputed that this note was secured by a third deed of trust. Although the escrow instructions did not call for Stewart Title to record that deed of trust, plaintiff eventually recorded it herself.

instructions indicate that plaintiff was to receive $100,783 at closing: $123,000 purchase price less the loan secured by the second deed of trust ($12,300) less closing costs. Plaintiff actually received far less: the $61,000 credited to her purchase of Valley Springs and $23,460 in cash. The difference equals the amount of the loan from plaintiff to the purchasers secured by the third deed of trust.

In her first amended complaint, plaintiff alleged four causes of action against Stewart: (1) fraud and concealment in inducing plaintiff to sign the documents pertaining to the sale of her house; (2) conversion of $18,470 of plaintiff's money; (3) negligent performance of fiduciary duties; and (4) fraud in carrying out a sham sale transaction.

Following this court's reversal in the first appeal, defendant Stewart moved for summary judgment on the ground that all of the causes of action were precluded by the full credit bid doctrine. The trial court eventually agreed and granted the motion. ² In urging us to affirm the trial court's order, defendant Stewart makes the same contention it did below, that all of plaintiff's causes of action are barred by the fact that plaintiff purchased the property by making a full credit bid.

DISCUSSION

I. The Full Credit Bid Rule

At a nonjudicial foreclosure sale the lender-beneficiary is entitled to make a credit bid up to the amount of his indebtedness, since it would be pointless to require the bidder to tender cash that would only be immediately returned to him. (Civ.Code, § 2924h, subd. (b); Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 607, 125 Cal.Rptr. 557, 542 P.2d 981.) A credit bid equal to the amount of the unpaid principal and interest, plus the costs, fees and other expenses of the sale, is known as a "full credit bid." (Id. at p. 606, fn. 10, 125 Cal.Rptr. 557, 542 P.2d 981.) ³ When the lender purchases the property by making a full credit bid, he effectively is paid the full amount of his debt; consequently, the debt is satisfied and the lien is extinguished. (Civ.Code, § 2910; Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1503, 236 Cal.Rptr. 59; Duarte v. Lake Gregory Land and Water Co. (1974) 39 Cal.App.3d 101, 104-105, 113 Cal.Rptr. 893.) This is true as well for a foreclosing junior lienholder. That is, when the junior lienholder makes a full credit bid and acquires the property at the trustee's sale, the debt secured by the junior lien is satisfied and the lien is extinguished. (Ballengee v. Sadlier (1986) 179 Cal.App.3d 1, 5, 224 Cal.Rptr. 301; see Caruso v. Great Western Savings (1991) 229 Cal.App.3d 667, 674, 280 Cal.Rptr. 322.) However, the junior lienholder, like any other successful purchaser, takes the property subject to the senior lien. (Davidow v. Corporation of America (1936) 16 Cal.App.2d 6, 11-12, 60 P.2d 132; see Brown v. Copp (1951) 105 Cal.App.2d 1, 6-8, 232 P.2d 868.)

In Cornelison v. Kornbluth, supra, 15 Cal.3d at pp. 605-606, 125 Cal.Rptr. 557 542 P.2d 981, the Supreme Court held that a lender's recovery of damages for bad faith waste may be precluded by what has come to be known as the full credit bid rule. ⁴ The court reasoned that in an action for waste the measure of damages is the amount of the impairment of the security (i.e., the amount by which the value of the security is less than the outstanding indebtedness). The lender's full credit bid establishes the value of the security as being equal to the amount of the indebtedness. Hence, the lender cannot establish any impairment of security and cannot recover any damages for waste. ⁵ (Id. at pp. 606, 607, 125 Cal.Rptr. 557, 542 P.2d 981.)

The full credit bid rule has never again been applied by the Supreme Court, but the Courts of Appeal have applied it beyond actions for waste so as to preclude recovery by the lender of damages from the borrower for fraud in the loan transaction. (Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508, 518-521, 259 Cal.Rptr. 425; Sumitomo Bank v. Taurus Developers, Inc. (1986) 185 Cal.App.3d 211, 220, 229 Cal.Rptr. 719.) The rule has also been applied to fraud actions against third parties. (GN Mortgage Corp. v. Fidelity Nat. Title Ins. Co. (1994) 21 Cal.App.4th 1802, 1807, 27 Cal.Rptr.2d 47; Western Fed. Savings & Loan Assn. v. Sawyer (1992) 10 Cal.App.4th 1615, 13 Cal.Rptr.2d 639.) ⁶ In GN Mortgage Corp. the court reasoned that "The primary measure of damages for tortious acts against a secured lender is the extent of impairment of the security, i.e., the amount by which the indebtedness exceeds the actual value of the security. [Citations.] A foreclosure sale establishes the actual value of the security. [Citation.] Where the secured property is sold at auction for an amount sufficient to satisfy the indebtedness, there is no impairment of security and the secured party is not damaged. [Citation.]" (21 Cal.App.4th at p. 1808, 27 Cal.Rptr.2d 47.)

On the other hand, the courts have also held that the full credit bid did not preclude an action against a developer...