Ung v. Koehler

• Citation: 37 Cal.Rptr.3d 311,135 Cal.App.4th 186
• Decision Date: 28 December 2005
• Docket Number: No. A109532.,A109532.
• Parties: Mui UNG, Plaintiff and Respondent, v. Henry KOEHLER, Defendant and Appellant.
• Court: California Court of Appeals

37 Cal.Rptr.3d 311

135 Cal.App.4th 186

Mui UNG, Plaintiff and Respondent, v. Henry KOEHLER, Defendant and Appellant.

No. A109532.

Court of Appeal, First District, Division 1.

December 28, 2005.

Law Offices of Daniel P. McLoughlin, Daniel P. McLoughlin, Berkeley; Law Offices of Andrea Adam Brott, Andrea Adam Brott, San Francisco, for Defendant and Appellant Henry Koehler.

Kirby & McGuinn, Martin T. McGuinn, San Diego, for Amicus Curiae United Trustees Association on behalf of Appellant.

McInerney & Dillon, Alexander Bannon, Oakland, for Plaintiff and Respondent Mui Ung.

MARGULIES, J.

I. INTRODUCTION

Plaintiff Mui Ung gave a promissory note, secured by a deed of trust on real property, to defendant Henry Koehler. Some 11 years after the note became due, defendant, claiming nonpayment, recorded a notice of default against the property in anticipation of a nonjudicial foreclosure sale. Plaintiff filed this action to enjoin the sale, contending that the statutory time limit for exercising the power of sale in the deed of trust had expired.

At common law there was no time limitation on the exercise of the power of sale in a deed of trust. The Legislature reversed that rule of law in 1982 when it passed the Marketable Record Title Act (Act) (Civ.Code, § 880.020 et seq.),¹ which has been held in prior decisions to impose a time limit on such exercise of either 10 or 60 years from the "final maturity date" of the underlying debt. Notwithstanding this authority, plaintiff argued that defendant's right to nonjudicial foreclosure under the deed of trust expired four years, rather than 10 or 60 years, after the note became due. She premised this argument on a provision of the Act, section 882.030, which had not been considered in the prior decisions. The trial court accepted her argument and granted summary adjudication precluding sale of plaintiff's property under the deed of trust.

We conclude that the 10-year and 60-year time limits for the exercise of a power of sale in a deed of trust imposed by section 882.020 are not overridden by section 882.030. Further, we conclude that once the beneficiary of a deed of trust has become entitled to claim the 60-year time limit of section 882.020, subdivision (a)(2), the beneficiary does not lose that entitlement merely by filing a notice of default that specifies the "final maturity date" of the underlying debt. Accordingly, we reverse the decision of the trial court.

II. BACKGROUND

Plaintiff borrowed money from defendant in December 1991. The loan was evidenced by a promissory note that was secured by a deed of trust to two real properties in Oakland. The note matured on December 31, 1992. More than 11 years after the note matured, on April 12, 2004, an agent for defendant recorded a notice of default against one of the two properties for which defendant held a deed of trust. Soon after, plaintiff filed this lawsuit to prevent defendant from enforcing the security interest provided by the deed of trust, contending that the statutory time period for enforcement had long since expired.

Plaintiff first filed a motion for a preliminary injunction to prevent defendant from conducting a nonjudicial sale of the property. The trial court granted the motion in an extensive written opinion. The opinion first noted that there was no dispute that judicial foreclosure on the deed of trust was precluded by section 2911, which extinguished that remedy upon expiration of the four-year statute of limitations applicable to the underlying promissory note. The trial court then turned to the availability of nonjudicial foreclosure. Prior to passage of the Act, the court noted, the law was clear that exercise of the power of sale in a deed of trust was not subject to any time limit at all. For the first time, the Act established such time limits. As the court recognized, California decisions had held that one of the Act's provisions, section 882.020, subdivision (a), imposes a time limit for nonjudicial foreclosure of either 10 or 60 years from the "final maturity date" of the debt. Despite acknowledging these authorities, the trial court refused to follow them because they did not consider the effect of section 882.030. Concluding that section 882.030, in concert with section 2911, acts to extinguish the remedy of nonjudicial foreclosure upon expiration of the statute of limitations on the underlying debt, the trial court preliminarily enjoined defendant from conducting a nonjudicial sale of plaintiff's property.

In response to subsequent cross-motions for summary adjudication, the trial court reaffirmed its ruling, granted summary adjudication for plaintiff on her claims against defendant, and made its injunction against foreclosure permanent. Because the trial court found that defendant's time to foreclose had expired under section 882.030, it had no occasion to reach plaintiff's alternative argument that defendant was entitled, at most, only to the expired 10-year time limit of section 882.020, subdivision (a)(1).²

III. DISCUSSION

A. The Time Limits Applicable to Exercise of a Power of Sale

Defendant contends that, contrary to the ruling of the trial court, the applicable time limits for nonjudicial foreclosure under a deed of trust are set forth in section 882.020, subdivision (a), and are unaffected by section 882.030. Because there are no material factual issues in dispute and the trial court's interpretation of the Act is an issue of law, we review its ruling de novo. (Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 911, 916, 129 Cal.Rptr.2d 811, 62 P.3d 54.)

1. The Legal Background

The beneficiary of a deed of trust ordinarily has two means to enforce the security interest provided by the deed. First, Code of Civil Procedure section 725a expressly grants the beneficiary the right to bring an action for judicial foreclosure "in the manner ... of a mortgage upon such property." (Code Civ. Proc., § 725a; see Field v. Acres (1937) 9 Cal.2d 110, 112, 69 P.2d 422.) In addition, if the deed of trust contains an express provision granting a power of sale — as deeds of trust invariably do — the beneficiary may pursue nonjudicial foreclosure, often called a "trustee's sale," under the detailed regulatory provisions of sections 2924 through 2924l. (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830, 30 Cal.Rptr.2d 777; Huene v. Cribb (1908) 9 Cal.App. 141, 143-144, 98 P. 78 [power of sale must be express in the deed of trust].) Aside from the availability of this second remedy, deeds of trust have the same legal effect as a traditional mortgage. As a result, deeds of trust are often characterized as "`practically and substantially only mortgages with a power of sale....'" (Monterey S.P. Partnership v. W.L. Bangham, Inc. (1989) 49 Cal.3d 454, 460, 261 Cal.Rptr. 587, 777 P.2d 623, quoting Bank of Italy etc. Assn. v. Bentley (1933) 217 Cal. 644, 657, 20 P.2d 940 (Bank of Italy).)

Historically, California law did not impose a time limit on nonjudicial foreclosure pursuant to a power of sale in a deed of trust. (E.g., Bank of Italy supra, 217 Cal. at p. 655, 20 P.2d 940 ["the statute of limitations never runs against the power of sale in a deed of trust"].) In 1872, the Legislature enacted section 2911, which states, "A lien is extinguished by the lapse of time within which ... [¶][a]n action can be brought upon the principal obligation." Although section 2911 was recognized as imposing a statute of limitations on judicial foreclosure of mortgages and other security interests (e.g., Puckhaber v. Henry (1907) 152 Cal. 419, 422-423, 93 P. 114), the statute almost immediately was held not to apply to nonjudicial foreclosure under a deed of trust. (Grant v. Burr (1880) 54 Cal. 298, 301.) Retention of the right to nonjudicial enforcement was justified by the equitable principle that "courts will not help the debtor to recover pledged or encumbered property unless he pays his debt." (Carson Redevelopment Agency v. Adam (1982) 136 Cal.App.3d 608, 612, 186 Cal.Rptr. 615 (Carson Redevelopment).)

Code of Civil Procedure section 725a, which expressly authorizes judicial foreclosure of a deed of trust, was enacted in 1933. The Supreme Court thereafter recognized that section 2911 extinguished the right to bring an action under section 725a of the Code of Civil Procedure for judicial foreclosure of a deed of trust upon expiration of the statute of limitations on the underlying debt, but the court reaffirmed the principle that exercise of the right of nonjudicial foreclosure was not subject to any time limit. (Flack v. Boland (1938) 11 Cal.2d 103, 106-107, 77 P.2d 1090 (Flack).) This rule of law continued unchallenged until the 1982 passage of the Act. (E.g., Carson Redevelopment, supra, 136 Cal.App.3d at p. 611, 186 Cal.Rptr. 615.)

There is no dispute that the Act overturned the historic rule. Chapter 2 of the Act, entitled "Ancient Mortgages and Deeds of Trust," contains a provision stating that "[u]nless the lien of a mortgage, deed of trust, or other instrument that creates a security interest of record in real property ... has earlier expired pursuant to Section 2911," the lien becomes unenforceable, by exercise of a power of sale or otherwise, either 10 years from the "final maturity date or the last date fixed for payment" of the underlying debt or 60 years from the date of recording of the security instrument. (§ 882.020, subd. (a).)³ Subsequent decisions have applied section 882.020 to impose a time limit on nonjudicial foreclosure under a deed of trust. (Nicolopulos v. Superior Court (2003) 106 Cal.App.4th 304, 130 Cal.Rptr.2d 626 (Nicolopulos); Miller v. Provost (1994) 26 Cal.App.4th 1703, 1708, 33 Cal.Rptr.2d 288 (Miller).) Miller held that section 882.020, subdivision (a)(2), permitted a power of sale to be exercised up to 60 years from the recordation of a deed of trust, rejecting the argument that the power of sale should be treated as a "lien" for purposes ...