As a matter of first impression, the California Court of Appeal recently issued a decision in Shuster v. Bac Home Loans Servicing, LP, holding that the omission of a trustee from a deed-of-trust does not preclude enforcement of non-judicial foreclosure pursuant to the deed-of-trust.
Facts of the Case:
In 2006 the homeowner-borrowers purchased a home in Simi Valley California. The deed-of-trust designated Mortgage Electronic Registration Systems (“MERS”) as the beneficiary but did not designate a trustee under the deed-of-trust.
In 2010, when the homeowners defaulted on the home loan, MERS designated Recon Trust as the Trustee. At the foreclosure sale, the Trustee sold the property to a third party purchaser.
The homeowner brought an action for cancellation of the foreclosure deed and for wrongful foreclosure. The homeowners alleged that they had a right to set aside the sale, primarily because the deed-of-trust failed to designate a trustee. The homeowners asserted that because of this omission the deed-of-trust was transformed into a “mortgage” that could only be foreclosed through judicial foreclosure. Here, the home had been foreclosed through a non-judicial foreclosure/trustee’s sale.
The trial court dismissed the lawsuit finding that the complaint (that had been amended twice) did not state facts sufficient to constitute a cause of action.
Holding: The Court of Appeal affirmed the trial court’s dismissal of the homeowner’s complaint, finding that the omission of the trustee from the deed-of-trust did not prevent enforcement of the deed-of-trust. Dismissal of the complaint was also proper because the complaint did not allege tender of the amounts due under the loan (although other recent case law brings this requirement into question).
Takeaway: The Court was keen on following the reasoning of other state cases that rejected similar arguments made by homeowners. Here it appears that courts may strive to reject these types of “technical error” arguments in order to set aside a foreclosure sale. Specifically, the Court stated, in issuing its holding, that the hardship of foreclosure will not became a haven for those who do not appear to make any good faith effort to resolve the issue, but instead attempt to seek shelter behind ministerial omissions.
If you are dealing with a matter similar to the contents of this article and believe you need real estate legal representation, please contact Brewer Offord & Pedersen LLP at (650) 327-2900, or visit our website at www.BrewerFirm.com.