A RECENT UNPUBLISHED DECISION OF THE CALIFORNIA COURT OF APPEAL THAT UNDER THE FACTS OF THAT CASE, THE FAILURE TO INCLUDE BOTH APN NUMBERS IN A NOTICE OF TRUSTEE’S SALE DID NOT INVALIDATE THE FORECLOSURE SALE OF THE PROPERTY.
REAVIS V. HSBC MORTGAGE 2014 WL 7180519 (December 17, 2014)
Lots 21 and 22 were adjacent to one another. In 1974, the owners recorded a covenant combining both lots to have one common address. Lot 21 is vacant land and Lot 22 is improved with a residence. Each lot is identified with a separate parcel number and assessed property taxes separately.
Reavis purchased the property in 1998 and in 2008 borrowed money from HSBC secured by a deed of trust on the property. The deed of trust identified both parcel numbers which had the same common address. The legal description identified both lot numbers.
Reavis defaulted on the HSBC loan and foreclosure was started. The Notice of Trustee’s Sale (“NOTS”) identified only one parcel number (the one with the residence). However, the NOTS also identified the deed of trust by recording date and stated that the property in the deed of trust was going to be sold and gave the common street address.
FNMA purchased the property at the trustee’s sale. A Trustee’s Deed was recorded identifying only the one parcel number with the residence. The legal description exhibit attached to the Trustee’s Deed listed both Lot 21 and 22.
FNMA completed an eviction of Reavis from the lot with the residence and obtained a judgment for possession. Reavis vacated Lot 22 with the residence and then moved to Lot 21, the vacant land.
FNMA then recorded a “corrective” Trustee’s Deed that listed both parcel numbers and the property description of Lot 21 and Lot 22.
The agent for FNMA had Reavis removed by law enforcement officers from Lot 21 and the property was sold to a third party.
The new buyer recorded a termination of the covenant in order to develop each lot separately into a single family residence.
The Trial Court Action:
Reavis filed suit against FNMA, the new buyer and others for fraud, cancellation of the Trustee’s Deed, Quiet Title, Waste, Trespass, and Declaratory Relief. The defendants all filed summary judgment motions and all were granted.
The basis for the motions were that the new buyer was a bona fide purchaser for value (“BFP”), the recorded covenant prevented the lots from being sold separately as a matter of law, the judgment in the unlawful detainer action determined the right to possession so no trespass occurred, and the omission of the second APN from the NOTS was immaterial.
Reavis opposed the motions claiming that the description in the NOTS was defective under Civil Code (“CC”) § 2924f(b)(5) and so the foreclosure was improper and void.
The trial court held that based on the facts, the failure to include an APN of one of the lots in the NOTS was not material and did not compel invalidation of the foreclosure sale. First, the NOTS stated the correct common address and expressly stated that the property was more fully described in the deed of trust, which had included both correct parcel number and lot numbers. Second, record title to the property, of which Reavis had constructive notice, included the deed of trust and the recorded covenant stating the intention to hold the property as one parcel.
The trial court concluded that no reasonable inference could be made that the omission of one parcel number was material and that Reavis had failed to establish any materiality or prejudice to him from the omission. The trial court also granted judgment on the equitable causes of action based on Reavis’ failure to tender the amount owed.
Reavis appealed all of the judgments.
Court of Appeal Decision
The appellate court first dealt with a procedural defect in the appeal. The appellate court stated that Reavis as appellant was required to present a proper record to the appellate court. Reavis had failed to include the reporter’s transcript of the summary judgment motions and as a result had failed to present a proper record and therefore failed to meet his burden on appeal. The appellate court stated that in the absence of a proper record on appeal, the judgment is presumed correct and must be affirmed.
The appellate court then found that even if the record was determined to be adequate, the trial court’s ruling was correct.
The appellate court first reviewed the specific language requirements of CC § 2924f(b)(5). It mentioned the general rule that foreclosure notice requirements were to be strictly construed. However, the appellate court then set forth the exception that “strict compliance” does not mean a trustee’s sale must be invalidated for trivial procedural defects that were immaterial and not prejudicial under the facts of a case. The rebuttable presumption that a foreclosure sale has been properly conducted may be challenged when the evidence shows that the procedural defect caused prejudice to the person attacking the sale.
The appellate court held that in this case there was no evidence that the omission of one parcel number was prejudicial to Reavis for the same reasons as set forth by the trial court. Reavis had constructive notice of the convenant requiring the property to be sold as one parcel. The NOTS identified the deed of trust being foreclosed on and stated that the foreclosure sale was selling the property identified in the deed of trust. Both Lot 21 and Lot 22 were described in the deed of trust. The NOTS stated the street address of the property, which is the address for both lots.
The appellate court concluded that there was no triable issue of fact because Reavis had not set forth any prejudice to him from the omission of specifically mentioning Lot 21 from the NOTS. As a result, the appellate court affirmed the trial court judgments.
It is important for lenders and foreclosure trustees to make sure their foreclosure documents are accurate, including all parcel numbers, street addresses, and legal descriptions. However, borrowers cannot use a trivial procedural defect in foreclosure documents to set aside a foreclosure unless the borrower can show prejudice to it by the defect that occurred. There is, at a minimum, a rebuttable presumption of validity to every foreclosure sale. In addition, the borrower must “tender” the amount owed when seeking the equitable remedy of setting aside a foreclosure sale.
Even though this is not a published case that can be quoted, the principles set forth in the case help lenders and foreclosure trustees in defending bad faith actions where a borrower claims a defect in the foreclosure process but has no prejudice from the purported defect.