Opinion
D072633
12-11-2017
WEST RADC VENTURE 2010-2, LLC, Plaintiff and Respondent, v. INDYMAC VENTURE, LLC, Defendant and Appellant.
The Dreyfuss Firm and Lawrence J. Dreyfuss for Defendant and Appellant. Hershorin & Henry and Lori C. Hershorin for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. PSC1301433) APPEAL from a judgment of the Superior Court of Riverside County, Gloria Trask, Judge. Reversed. The Dreyfuss Firm and Lawrence J. Dreyfuss for Defendant and Appellant. Hershorin & Henry and Lori C. Hershorin for Plaintiff and Respondent.
This appeal involves a deed of trust with inconsistent descriptions of the property it encumbers and considers how that inconsistency impacts a priority dispute between two lenders.
In 2004, Frank Eder owned two adjacent undeveloped lots. One had a street address of 70 Royal Saint Georges, and the other, 68 Royal Saint Georges.
In two separate loans made the same day, Eder borrowed against each property. In several places, the deed of trust securing a $648,050 loan describes the encumbered property as 70 Royal Saint Georges, Rancho Mirage, California. However, on another page, the trust deed describes the property by legal description: Lot 16 of tract No. 25361, as shown in a certain map in the records of Riverside County. The problem is that the address and legal description do not match. There is no such property. Seventy Royal Saint Georges is lot 15, not lot 16.
Hereafter, references to lot 15 and lot 16 are to such lots in tract 25361.
The deed of trust securing the other loan, for $556,400, also describes the encumbered property by address and legal description: 68 Royal Saint Georges, lot 15. But there is no such property. Sixty-eight Royal Saint Georges is lot 16, not lot 15.
In deposition testimony, Eder stated he intended to secure the $648,050 loan with lot 15, 70 Royal Saint Georges, and the other loan with lot 16, 68 Royal Saint Georges. He explained that when he signed both sets of loan documents, the legal descriptions were not attached. Later, a loan processor apparently switched the legal descriptions by mistake, attaching the wrong one to each trust deed. Eder did not discover the error until 2008.
Meanwhile, in 2007 Eder borrowed $3.12 million from a different lender to build a house at 68 Royal Saint Georges. That loan is secured by a deed of trust that correctly identifies the encumbered property as lot 16.
After Eder defaulted on the three loans, the holder of the $648,050 loan, West RADC Venture 2010-2, LLC (West RADC), brought an action for quiet title to lot 16. In a motion for summary adjudication, West RADC asserted it was undisputed that its trust deed was recorded against lot 16 in 2004, and thus had priority over the construction loan then held by Indymac Venture, LLC (Indymac), whose trust deed against lot 16 was recorded in 2007.
The trial court agreed with West RADC's theory of priority. After West RADC voluntarily dismissed its remaining causes of action, the court entered judgment quieting title to lot 16 in favor of West RADC.
We reverse. Priority and property rights are distinct issues. Before the trial court could determine the priority of competing security interests to lot 16, the court first had to determine if West RADC's trust deed encumbered lot 16, or instead lot 15. Because that trust deed contains inconsistent descriptions of the encumbered property, it is ambiguous. Especially in light of Eder's deposition testimony that the parties intended the West RADC trust deed to encumber lot 15—not lot 16—that ambiguity cannot be resolved on summary judgment.
FACTUAL AND PROCEDURAL BACKGROUND
A. Lots 15 and 16
In 2004, Eder owned lots 15 and 16. At that time, lot 15 was a 1.5 acre vacant parcel with a street address of 70 Royal Saint Georges. Lot 16 was an adjacent vacant parcel, about half the size of lot 15, with a street address of 68 Royal Saint Georges.
B. The $648,050 Loan
On October 26, 2004, Eder borrowed $648,050 from Security Pacific Home Loans, Inc. (Security Pacific). This loan was evidenced by a "Balloon Note" that identified the encumbered property as "70 Royal Saint Georges, Rancho Mirage, California." The loan was secured by a deed of trust that identifies the secured property by stating, "See legal description attached hereto and made a part hereof as exhibit 'A.' A.P.N. #: 673-330-033-8[,] which currently has the address of 70 Royal Saint Georges . . . ." There are two pages entitled "Exhibit 'A' " near the end of the trust deed, both of which identify the secured property as "70 Royal Saint Georges." The following page, entitled "Legal Description," identifies the secured property as "Lot 16 of Tract No. 25361 . . . ."
This trust deed is supplemented by a document entitled "1-4 Family Rider (Assignment of Rents)" that also identifies the property "described in the [s]ecurity [i]nstrument" as 70 Royal Saint Georges. The trust deed also contains a "Planned Unit Development Rider" that describes the secured property only by the 70 Royal Saint Georges address. On November 10, 2004, this trust deed was recorded as document No. 2004-0896814 in the Riverside County Recorder's Office against lot 16.
C. The $556,400 Loan
As part of a simultaneous transaction on October 26, 2004, Eder also borrowed $556,400 from Security Pacific. This loan was evidenced by a balloon note that identified the property as "68 Royal Saint Georges, Rancho Mirage, California." This loan was secured by a deed of trust that identifies the secured property by stating, "See legal description attached hereto and made a part hereof as exhibit 'A.' A.P.N. #: 673-330-033-8[,] which currently has the address of 68 Royal Saint Georges . . . ." There are two pages entitled "Exhibit 'A' " near the end of the trust deed, both of which identify the secured property as "68 Royal Saint Georges." The following page, entitled "Legal Description," identifies the secured property as "Lot 15 of Tract No. 25361 . . . ."
This trust deed is supplemented by a document entitled "1-4 Family Rider (Assignment of Rents)" that also identifies the property "described in the [s]ecurity [i]nstrument" as 68 Royal Saint Georges. The trust deed also contains a "Planned Unit Development Rider" that similarly describes the secured property by the 68 Royal Saint Georges address. On November 10, 2004, this trust deed was recorded as document number 2004-0896674 in the Riverside County Recorder's Office.
The following diagram summarizes this evidence:
Lot 15
70 Royal St. Georges
1.5 acres
$648,050 loan
Trust Deed: 70 RSG and Lot 16
Lot 16
68 Royal St. Georges
2/3 acre
$556,420 loan
Trust Deed: 68 RSG and
Lot 15
On October 26, 2004, Security Pacific assigned these two loans to Ohio Savings Bank, which later became AmTrust Bank.
D. Eder's Deposition Testimony About the 2004 Loans and Trust Deeds
In deposition, Eder testified that legal descriptions were not attached to these two trust deeds when he signed them; the lender attached the legal descriptions later. Eder understood and intended that the larger loan ($648,050) would be secured by the larger parcel (lot 15, 70 Royal St. Georges), and the smaller loan ($556,400) would be secured by the smaller parcel (lot 16, 68 Royal St. Georges).
E. The 2007 Construction Loan
In June 2007, Eder obtained a $3,120,000 construction loan from Wall Street Mortgage Bankers, LTD (Wall Street Mortgage), secured by a deed of trust on lot 16. Unlike the AmTrust loan documents, the Wall Street Mortgage trust deed describes the encumbered property only by lot number, lot 16. In deposition, Eder testified he intended to secure this construction loan with 68 Royal Saint Georges, lot 16, where the construction loan would be used to build a house.
The construction lender wanted a first position on the secured property, which required the $556,400 loan to be paid off as part of the construction loan. AmTrust Bank issued a "payoff quote" for loan No. 2447006 on "68 Royal St. Georges" in the amount of $534,697.90. The payoff quote does not refer to the property by lot number. The loan number stated on the payoff quote is incorrect; it does not match either of the two AmTrust Bank loans. But the payoff amount was consistent with the smaller of the two loans; i.e., the $556,420 loan that was intended to be secured by 68 Royal Saint Georges.
On June 26, 2007, AmTrust Bank was issued a check for $534,655.71. As a result, a reconveyance was recorded, stating that the indebtedness secured by instrument No. 2004-0896674 (the deed of trust for the $556,420 loan) had been fully paid.
Subsequently, Wall Street Mortgage assigned its rights in the $3.12 million note and trust deed to Indymac Bank, F.S.B. Later, the Federal Deposit Insurance Corporation (FDIC), as receiver for Indymac Bank, F.S.B, assigned the note and trust deed to Indymac.
F. Stewart Title Records Release of Obligation
In December 2007, Stewart Title Guaranty Company (Stewart Title) recorded a "Release of Obligation," stating that the $648,050 obligation secured by trust deed No. 2004-896814 (the trust deed recorded in the lot 16 chain of title) had been paid in full. This was a mistake, apparently caused by the inconsistent property descriptions in the deeds of trust securing both of the 2004 loans. In 2010, realizing that the $648,050 loan had not been paid, Stewart Title recorded a document cancelling the release of obligation.
Stewart Title's recording and later cancellation turns out to be irrelevant on appeal. The trial court concluded that Stewart Title's release of obligation was void, and the undisputed evidence established that the $648,050 loan was never paid. Indymac does not challenge that determination. The event is noted, however, because it illustrates the extent of the ambiguity in the trust deeds.
G. Eder and AmTrust Bank Modify the $648,050 Loan
In September 2008, Eder and AmTrust Bank modified the $648,050 loan by extending the due date to November 1, 2009. This loan modification agreement refers to the property "described in the [s]ecurity [i]nstrument" as "70 Royal Saint Geor[ges]" and also as lot 16.
In deposition, Eder testified that upon receiving this loan modification, he realized for the first time that the legal description erroneously identified the secured property as lot 16 instead of lot 15. Eder sent an e-mail to AmTrust Bank asking that the legal description be corrected to show that 70 Royal Saint Georges is lot 15. However, in a reply e-mail, AmTrust Bank stated it could not correct the legal description because the wrong lot number "is the number the [t]itle [c]ompany has reflected on the documents at the time of closing." AmTrust Bank promised, however, to "forward this e-mail to our legal department to have them research this issue."
Although Eder knew the legal description (lot 16) was inconsistent with the street address (70 Royal Saint Georges), he signed the loan modification documents anyway. Eder testified he was having financial problems, needed more time to pay, and believed that by calling the error to the bank's attention, he had done all he reasonably could do to correct the mistake.
A year later, Eder continued to have financial problems. In August 2009, he and AmTrust Bank modified the same loan again, extending the maturity date to November 1, 2011. Like the 2008 modification, the trust deed describes the secured property as "70 Royal Saint Geor[ges]" with a legal description of lot 16.
H. West RADC Acquires Rights in the $648,050 Note and Trust Deed
In approximately December 2010, West RADC acquired the $648,050 note and its trust deed from the FDIC as receiver for AmTrust Bank.
Meanwhile, in August 2010, lot 15 (70 Royal Saint Georges) was sold in a foreclosure sale to persons or entities not named in this litigation. Thus, West RADC can foreclose under the trust deed securing Eder's $648,050 note only if that trust deed encumbers lot 16 (68 Royal Saint Georges) and has priority over the trust deed securing the construction loan, which is held by Indymac.
I. West RADC's Motion for Summary Adjudication
West RADC filed a complaint against Eder, his wife, Stewart Title, and Indymac alleging causes of action for quiet title and other related legal theories. The complaint alleges, "The basis of West RADC's title is the [d]eed of [t]rust" attached as exhibit "B" to the complaint. That trust deed is the one recorded as document No. 2004-0896814, which describes the encumbered property as 70 Royal Saint Georges, and also as lot 16.
The gravamen of West RADC's complaint is that Eder defaulted on the $648,050 loan, and that West RADC, as assignee of AmTrust Bank's rights in that loan and its trust deed, may foreclose on lot 16, having priority over the subsequently recorded trust deed held by Indymac.
West RADC brought a motion for summary adjudication of its quiet title cause of action. West RADC's theory was straightforward: In November 2004, West RADC's predecessor in interest made a $648,050 loan to Eder that was secured by a deed of trust "recorded against Lot 16." West RADC asserted, "Therefore, under the California law of priorities, any deeds of trust recorded after November[] 2004 are junior encumbrancers who took their interest in Lot 16 subject to [West RADC's d]eed of [t]rust as a matter of law."
West RADC's motion for summary adjudication did not mention that its deed of trust also describes the encumbered property as 70 Royal Saint Georges, which is not lot 16, but rather is lot 15.
Indymac filed opposition, asserting there was a triable issue that Eder and Security Pacific intended to secure the $648,050 loan by the property located at 70 Royal Saint Georges, lot 15—not lot 16. Indymac lodged excerpts of Eder's deposition, where Eder testified that "[t]he bigger dollar amount [of loan] was supposed to go to the bigger lot . . . . [A]nd the smaller loan amount was to go to lot 16 . . . 68 Royal St. Georges." Eder also testified the two AmTrust loans had conflicting legal descriptions, stating:
"Q[:] When you say 'conflicting legal descriptions,' what are you referring to?
"A[:] The loan modification referenced . . . 70 Royal St. Georges as the property address, but then the legal description said lot 16. [¶] And for the loan modification for 68 Royal St. Georges Way, the legal description referenced lot 15."
Eder testified he and AmTrust bank intended the $648,050 loan to be secured by lot 15, not lot 16:
"Q[:] At all times you intended to secure the loan for $648,000 [sic]; isn't that correct?
"A[:] For lot 15, also known as 70 Royal St. Georges.
"Q[:] You always contemplated that the loan would be secured, correct?
"A[:] For lot 15, 70 Royal St. Georges Way."
Indymac asserted that West RADC's motion should be denied because (1) there was a triable issue whether the West RADC trust deed encumbered lot 15 or 16, and (2) whether the parties intended to encumber lot 16 had to be decided before the issue of priority could be reached:
"[T]he issue is not a matter of priority concerning the timing of the recording of the deeds of trust as [West RADC] would have this court believe, but rather the more fundamental issue of whether the deed of trust securing the $648,000 [sic] loan held by [West RADC] was ever intended to be secured by Lot 16 (68 Royal St. Georges) to begin with."
After conducting a hearing, the court granted West RADC's motion for summary adjudication. The court determined that as a matter of law, the West RADC deed of trust recorded as No. 04-896814 "is a valid and first priority lien as of November 10, 2004" on lot 16.
Before the court entered judgment, West RADC voluntarily dismissed (1) all causes of action other than the fifth cause of action for quiet title, and (2) Eder and his limited liability company, 70 Royal St. Georges, LLC, from the fifth cause of action. Eder and 70 Royal St. Georges, LLC, voluntarily dismissed their cross-complaint against West RADC.
With the case narrowed down to a quiet title action between West RADC and Indymac, the court entered judgment in favor of West RADC.
Concurrently, Stewart Title had filed a motion for summary judgment against West RADC, asserting that as a matter of law West RADC had no security interest in lot 16. The court denied Stewart Title's motion, finding there were material disputed facts, including "[w]hether Eder intended to encumber the Lot 15 with a $649,050 [sic] [d]eed of [t]rust in favor of Security Pacific Bank" and whether "the recorded $648,050 deed of trust had a legal description attached to it as an exhibit that mistakenly described Lot 16."
Indymac contends theses factual disputes show why the court should have likewise denied West RADC's summary adjudication motion. We decline to consider this point because, as West RADC correctly states, the motions were separate and based on separate records and, in any event, the order denying summary judgment is not appealable except from the final judgment and Stewart Title is not a party to this appeal.
DISCUSSION
I. THE JUDGMENT MUST BE REVERSED BECAUSE THERE IS A TRIABLE ISSUE
WHETHER WEST RADC'S TRUST DEED ENCUMBERS LOT 16
Indymac contends the trial court erroneously put the priority-cart before the contract interpretation-horse. Indymac asserts that before addressing priority issues, the court must first determine "whether the deed of trust securing the $648,050 loan held by [West RADC] was ever intended to be secured by [l]ot 16 (68 Royal St. Georges) to begin with." Pointing to, among other things, Eder's deposition testimony, Indymac contends there is substantial evidence showing that properly interpreted, the trust deed now held by West RADC does not encumber lot 16 at all.
Indymac is correct—priority and property rights are distinct issues. The recording laws generally do not govern the creation of interests in real property. Rather, they affect the priority of interests by defining when a person is deemed to have constructive notice of another interest in the property. (4 Miller & Starr, Cal. Real Estate (4th ed. 2016) § 10.1, pp. 10-11 to 10-12 (hereafter Miller & Starr).)
"Recording itself does not grant an interest in property. . . ." (Miller & Starr, supra, § 10:8, p. 10-60.) Accordingly, before determining the priority of competing trust deeds, the court must first determine whether the party claiming lien priority has a security interest in the subject property. (See Tompkins v. United States (11th Cir. 1991) 946 F.2d 817, 819 [quiet title action, the court stating, "Before we can evaluate the priority of the liens, we must first determine [plaintiff's] . . . property rights"].)
West RADC may be correct that recording and indexing its trust deed in the lot 16 chain of title provides constructive notice of the content of that trust deed. (See First Bank v. East West Bank (2011) 199 Cal.App.4th 1309, 1313-1314.) However, in this case, where the trust deed contains inconsistent descriptions of the encumbered property, the question remains—on what property does West RADC have a security interest? Recording and indexing West RADC's trust deed in the lot 16 chain of title does not answer that question. The threshold issue in this case is a contract interpretation question, not a priority question. And the contract interpretation issue is determined, not by the act of recording or indexing the trust deed, but by its terms and properly admissible extrinsic evidence of the parties' intent. (See City of Manhattan Beach v. Superior Court (1996) 13 Cal.4th 232, 238 [with deeds as with any other contract, the object of interpretation is to ascertain and carry out the parties' intention].)
Thus, while it may be true, as West RADC asserts, that Indymac took its interest " 'subject to' the interest of the West RADC [d]eed of [t]rust," the starting point is: Exactly what is the property interest created in the West RADC deed of trust? Is it an encumbrance on lot 15? Or is it on lot 16? Unless and until that question is answered, a discussion of priority is premature.
A trust deed that contains inconsistent descriptions of the property it encumbers is, as a matter of law, ambiguous. (See Yale Holdings, LLC v. Capital One Bank (2014) 263 Ore.App. 71, 76 [reversing summary judgment because the trust deed contained inconsistent descriptions of the encumbered property].) Here, West RADC's deed of trust is ambiguous as to what property it encumbers. In five separate places, that trust deed describes the encumbered property as 70 Royal Saint Georges, Rancho Mirage, California. However, in one place, it also describes the secured property as "Lot 16 of Tract No. 25361." In deposition, Eder testified that lot 15 has the street address of 70 Royal Saint Georges, and the parties intended the $648,050 loan to be secured by lot 15 (70 Royal Saint Georges), not lot 16:
"Q[:] And so it was your understanding at that time that the $648,000 [sic] loan remained as secured by lot 15, correct?
"A[:] Correct. 70 Royal [Saint] Georges Way, lot 15."
Moreover, "[s]ubsequent acts of the parties to the transaction which disclose the interpretation given to the conveyance by themselves is strong evidence of the interest conveyed." (Murphy Slough Assn. v. Avila (1972) 27 Cal.App.3d 649, 658.) In 2008, before any dispute about these loans arose, Eder notified AmTrust Bank that the legal description (lot 16) on the $648,050 loan was a mistake and should be corrected to reflect the security interest for that loan was intended to be lot 15. An e-mail from Eder to AmTrust Bank in October 2008 states:
"[P]lease amend the [loan modification documents] for 70 Royal St. George [sic] to reflect the correct legal description.
The correct legal description should say the following:
"[L]oan . . . for 70 [R]oyal [S]t. [G]eorge [sic]—should say LOT 15 . . . ."
Because Eder's deposition testimony creates a triable issue that West RADC's trust deed does not encumber lot 16, the court erred in granting West RADC's motion for summary adjudication.
Accordingly, it is unnecessary to consider Indymac's contention that the trial court erred in sustaining objections to the declaration of Mary Jean Pedneau, an attorney employed by Stewart Title to investigate title issues in this case. Even without Pedneau's declaration, there is evidence creating material factual disputes precluding summary judgment. --------
Seeking to uphold the judgment, but without citing authority, West RADC contends the court properly entered summary judgment because Eder "ratified" lot 16 as security for the $648,050 by executing the 2008 and 2009 AmTrust Bank loan modifications. This argument is untenable for at least two reasons. First, by failing to develop this point with reasoned argument and citations to authority, West RADC has forfeited the point. (People v. Stanley (1995) 10 Cal.4th 764, 793.) Moreover, even if not forfeited, we would reject West RADC's assertion. Ratification is the approval of a transaction that has already occurred, and it is a question of fact. (StreetScenes v. ITC Entertainment Group, Inc. (2002) 103 Cal.App.4th 233, 242.) In his deposition, Eder testified he did not approve the erroneous legal description. He testified the legal description was not attached to the loan documents when he executed them in 2004. In 2008, when Eder first discovered the switched legal descriptions, he did not approve of the error. To the contrary, Eder testified he called the lender's attention to the mistake and asked the lender to correct it. The documentary evidence supports Eder's testimony. In an e-mail, AmTrust Bank assured Eder it would forward his concern to its "legal department to have them research this issue." Eder testified he signed the uncorrected loan documents because he was in dire financial distress and needed the loan modification. West RADC cites no case even suggesting that such facts establish ratification, much less ratification as a matter of law.
West RADC also contends summary judgment should be affirmed because only parties to the original contract may seek to set it aside for a mutual mistake and, in any event, any such action based on a mutual mistake would now be time-barred. However, the issue presented by this case is not whether the West RADC trust deed should be rescinded for mutual mistake, but rather what the document means, what property it encumbers. Indymac does not contend the trust deed should be rescinded or set aside. It merely asks that the trust deed be properly interpreted, and contends that properly construed, the deed of trust does not encumber lot 16.
In a related argument, West RADC asserts Indymac is improperly seeking to "invalidate West RADC's security interest in Lot 16 based upon an alleged mistake that cannot be remedied." But this assertion also misses the target. Indymac's argument is not that West RADC has an invalid security interest in lot 16. Rather, the argument—supported by Eder's deposition testimony and other evidence—is that West RADC has no security interest in lot 16—and never did—because its predecessor in interest, who loaned $648,050, intended to secure that loan with 70 Royal Saint Georges, which is lot 15 and not lot 16.
Moreover, to the extent West RADC invokes the equities of the situation by asserting the mistake cannot now be remedied, the argument fails because in 2008, Eder notified West RADC's predecessor in interest, AmTrust Bank, about the erroneous legal description. AmTrust Bank used the same legal description in the 2009 loan modification.
Unless and until it is determined that West RADC's trust deed encumbers lot 16, it is premature to quiet title in lot 16 to West RADC based simply on its priority in recording. Therefore, the court erred in granting summary adjudication.
DISPOSITION
The judgment is reversed. Indymac Venture, LLC, is entitled to costs incurred on appeal.
NARES, Acting P. J. WE CONCUR: O'ROURKE, J. AARON, J.