WFG Nat'l Title Ins. Co. v. Wells Fargo Bank, N.A.

• Decision Date: 12 June 2020
• Docket Number: B294249
• Citation: 51 Cal.App.5th 881,264 Cal.Rptr.3d 717
• Court: California Court of Appeals
• Parties: WFG NATIONAL TITLE INSURANCE COMPANY, Plaintiff and Appellant, v. WELLS FARGO BANK, N.A., AS TRUSTEE, FOR PARK PLACE SECURITIES, INC. ASSET-BACKED PASS-THROUGH CERTIFICATES, SERIES 2005-WCW2, et al., Defendants and Respondents.

51 Cal.App.5th 881

264 Cal.Rptr.3d 717

WFG NATIONAL TITLE INSURANCE COMPANY, Plaintiff and Appellant,

v.WELLS FARGO BANK, N.A., AS TRUSTEE, FOR PARK PLACE SECURITIES, INC. ASSET-BACKED PASS-THROUGH CERTIFICATES, SERIES 2005-WCW2, et al., Defendants and Respondents.

B294249

Court of Appeal, Second District, Division 3, California.

Filed June 12, 2020

Hershorin & Henry, Lori C. Hershorin, Lake Forest, and Claudia Mourad, Irvine, for Plaintiff and Appellant.

Wargo & French, Mark L. Block, Los Angeles, Shanon McGinnis and Jeffrey N. Williams, Los Angeles, for Defendants and Respondents.

LAVIN, Acting P. J.

INTRODUCTION

This matter arises out of an alleged mortgage fraud scheme designed to defraud mortgage lenders and involving numerous realtors, loan brokers, loan officers, and real estate brokers. One defrauded lender is Milestone Financial d/b/a Alviso Funding (Alviso), the original plaintiff in this case.

The operative complaint alleges that various defendants set up a sham transaction by which a seller purported to sell a property in Sherman Oaks (property) to a buyer who obtained a mortgage loan from Alviso to fund the purchase. As it turned out, the seller did not own the property because the recorded trustee's deed upon sale that appeared to convey title to the seller was forged. When the buyer subsequently defaulted on the mortgage loan, Alviso was left holding the proverbial bag because its deed of trust, purportedly secured by the property, is predicated on the forged trustee's deed upon sale.

Alviso sued numerous parties allegedly involved in the sham transaction and, as pertinent here, the senior lienholder on the property, defendants and respondents Wells Fargo Bank, N.A.,¹ and its loan servicer, Select Portfolio Servicing (collectively, Wells Fargo). The title insurer involved in the sham transaction, plaintiff and appellant WFG National Title Insurance Company (plaintiff or WFG Title), is Alviso's successor-in-interest and is now prosecuting the action.

Essentially, plaintiff contends that Wells Fargo—the beneficiary of an indisputably valid deed of trust recorded well before the forged deed was recorded—was required to immediately discover the forged deed and promptly record a rescission of it in order to protect unknown third parties such as Alviso from the possibility of being defrauded. Because Wells Fargo failed to do so, plaintiff argues, principles of equity demand that Alviso's interest in the property should be senior to Wells Fargo's.

Wells Fargo moved for summary judgment, asserting it had no legal obligation to monitor the status of its title or to take affirmative steps to rid public records of improperly recorded documents relating to the property. The court agreed with Wells Fargo, finding that it had no legal obligation to maintain public title records and further finding that equity did not justify displacing Wells Fargo as senior lienholder. The court granted Wells Fargo's motion for summary judgment and we affirm.

FACTS AND PROCEDURAL BACKGROUND

1. Status Quo Prior to the Sham Transaction

The property is located at 4050 Camino de la Cumbre in Sherman Oaks. In 2005, Jubilio Escalera and Jose Alonzo (the borrowers) obtained a mortgage loan from Argent Mortgage Company (Argent) in the amount of $710,460. The promissory note was secured by a deed of trust on the property in favor of Argent. In 2012, an assignment of that deed of trust was recorded, showing that Argent's interest in the deed of trust had been transferred to Wells Fargo.² (We refer to this instrument as Wells Fargo's deed of trust.)

The borrowers defaulted on the loan. In December 2014, Wells Fargo's foreclosure trustee, Quality Loan Service Corporation (Quality), recorded a notice of default and election to sell under deed of trust. Quality subsequently recorded a notice of trustee's sale on February 3, 2016, setting the date of the foreclosure sale on February 26, 2016. Apparently, no sale took place on that date because Quality recorded a second notice of trustee's sale on April 4, 2016, setting the date of sale on April 26, 2016. No sale took place, however.

2. The Sham Transaction

Although the property had not been sold by the foreclosure trustee on April 26, 2016, a trustee's deed upon sale was recorded on July 8, 2016, i.e., the forged deed. The forged deed appeared to have been recorded by Quality and it represented that on June 8, 2016, defendant Adeliya Timirova Investments (ATI) purchased the property at the trustee's foreclosure sale, purportedly extinguishing Wells Fargo's deed of trust.

A number of other defendants allegedly participated in the next phase of the scheme—the sale of the property from ATI to Tatiana Vovk, also a named defendant. The preliminary title report indicated, by way of the forged deed, that title was vested in ATI. Relying on representations by various defendants, Alviso agreed to loan Vovk $850,000 in exchange for a first deed of trust on the property. Meanwhile, on August 2, 2016, Quality recorded another notice of trustee's sale, setting a sale date of August 25, 2016. This document was not discovered by Alviso or WFG Title prior to the close of escrow.

The loan funded and escrow for the sham purchase of the property by Vovk closed on October 7, 2016. A deed of trust in favor of Alviso (Alviso's deed of trust) was duly recorded on the same date. No payments on the loan were ever made, however.

Alviso first became aware that the Vovk transaction might be fraudulent after WFG Title was contacted by the Los Angeles Police Department in late October 2016. Wells Fargo filed a notice of rescission of the forged deed on November 16, 2016.

3. The Lawsuit and Wells Fargo's Motion for Summary Judgment

In November 2016, Alviso filed the underlying lawsuit against numerous individuals and entities it alleged were involved in the mortgage fraud scheme. It later assigned its claim to WFG Title, which substituted into the lawsuit. (From this point, we refer to WFG Title, to the extent it is standing in the shoes of Alviso, as "plaintiff.") As pertinent here, plaintiff sought to quiet title to the property in itself as against Wells Fargo and sought declaratory relief to the effect that Alviso's deed of trust is senior to Wells Fargo's deed of trust.

Wells Fargo moved for summary judgment and/or summary adjudication. As to both of plaintiff's claims, Wells Fargo argued that the forged deed, upon which plaintiff based its claim to title, was wholly void. As a matter of law, then, plaintiff failed to obtain any valid interest in the property which could defeat Wells Fargo's indisputably valid interest. Anticipating plaintiff's argument that equitable principles should bar it from asserting its right as a senior lienholder, Wells Fargo also asserted that no law or statute required it to monitor public records regarding the property and/or act to correct public records in the event that a forged deed or other notice was recorded, as plaintiff claimed. Accordingly, Wells Fargo could not, as a matter of law, be equitably estopped from asserting its valid interest in the property. Moreover, Wells Fargo contended, equity should not defeat Wells Fargo's interest because Alviso and WFG Title had constructive notice that the forged deed might be fraudulent by virtue of the trustee's notice of sale recorded on August 2, 2016—which should have put the parties on notice that the forged deed might not be valid—more than two months before escrow closed on the sham transaction.

Plaintiff attacked Wells Fargo's motion on several procedural grounds relating to the admissibility of evidence and correctness of the separate statement. On the merits, and as pertinent here, plaintiff offered three main arguments. First, plaintiff asserted that Wells Fargo should be equitably estopped to claim a superior lien position "after it knowingly allowed the purportedly forged Trustee's Deed Upon Sale of its Deed of Trust to remain in the public record for a period of time resulting in an $850,000 loss to" Alviso. Although plaintiff acknowledged that a forged deed ordinarily does not transfer good title, it claimed that Wells Fargo's "excessive and unreasonable delay" in recording a rescission of the forged deed constituted sufficient grounds to estop Wells Fargo from asserting its senior lien position. Second, plaintiff urged that Wells Fargo's failure to correct public title records in a timely manner constituted a ratification of the forged deed—conduct which would also estop Wells Fargo from claiming a senior lien position. Third, plaintiff argued that under Civil Code section 3543,³ Wells Fargo's "complete disregard ... that innocent third parties, like WFG [Title and Alviso], would rely on the status of the Property's title in making decisions whether to lend money secured by the Property," demanded that plaintiff's interest in the property should be given the senior position.

4. The Court's Ruling and the Appeal

The court found in favor of Wells Fargo on both the quiet title and declaratory relief claims. The court first addressed, and largely rejected, plaintiff's procedural arguments regarding alleged deficiencies in Wells Fargo's motion for summary judgment and supporting documents.⁴

On the merits of plaintiff's claims, the court first addressed the validity of plaintiff's interest in the property. The court noted, as Wells Fargo had argued, that as a matter of law, a forged deed is void ab initio and cannot provide a basis for superior title against a prior, valid interest in real property. And a void instrument infects the entire chain of title, such that any subsequent conveyance stemming from the void instrument is also void as a matter of law. In a straightforward application of that well-settled law, the court concluded that Alviso's deed of trust was void as a matter of law because it related to ATI's conveyance to Vovk, which in turn flowed from the void, forged deed purporting to convey title to ATI. No triable issue of fact...