Opinion
NOT TO BE PUBLISHED
Superior Court County of Ventura Vincent O'Neill, Judge, No. CIV203170 .
Susan Balistocky for Plaintiff and Appellant Gershon Gabel.
Edward D. Russell, Michael J. Gilligan; McCarthy & Holthus, LLP, Daniel J. Goulding for Defendant, Respondent and Appellant Fidelity National Foreclosure Solutions.
PERREN, J.
We consider consolidated appeals arising from a nonjudicial foreclosure sale of residential property. A jury found Fidelity National Foreclosure Solutions (FNFS) negligent for conducting a foreclosure sale of the residence of Gershon Gabel without providing him notice. The jury awarded compensatory damages to Gabel in the amount of $450,000, with 15 percent apportioned to FNFS.
On appeal, Gabel asserts the trial court erred in calculating damages by fixing the value of the property as of the date of the foreclosure sale rather than at its much-appreciated value at the time of trial.
In a separate appeal, Gabel contends the trial court erred in denying his request for attorney fees under Civil Code section 1717 and Code of Civil Procedure section 1021.
FNFS's motions for judgment notwithstanding the verdict (JNOV) and new trial were denied. It filed an appeal asserting the jury erred in finding negligence because it had complied with all notice requirements imposed upon it by Civil Code sections 2924 et seq. in conducting the foreclosure sale.
We affirm the judgment for damages and the order denying Gabel's motion for attorney fees. We affirm the orders denying FNFS's motion for JNOV and new trial.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
In November 1996, Gabel purchased a residence in Bell Canyon, California, for $545,000. He executed a note and deed of trust in favor of World Savings and Loan Association (World Savings) in the amount of $400,000. An impound account for property taxes and insurance was maintained by World Savings and was part of Gabel's monthly payment.
In January 1999, Gabel executed a note and deed of trust in favor of Alliance Funding Company, a division of Superior Bank, for $100,000. The trust deed granted Superior Bank a security interest in the Bell Canyon property junior to that of World Savings.
Gabel defaulted on the Superior Bank loan and the bank initiated nonjudicial foreclosure proceedings, recording a notice of default on August 11, 2000. A trustee's sale was then noticed for December 4, 2000. On November 17, 2000, a substitution of trustee was recorded naming FNFS as foreclosure trustee under the Superior Bank deed.
Gabel testified he did not receive the notice of default or the notice of sale. In November 2000, Gabel learned in a telephone conversation with someone from Superior Bank or FNFS that his house was to be sold at auction on December 4, 2000.
On November 28, 2000, Gabel and Superior Bank entered into a forbearance agreement (agreement) creating a payment plan to cure Gabel's default. FNFS was not a party to the agreement, but there was evidence that FNFS prepared the agreement or had it prepared on behalf of Superior Bank.
The agreement states the total arrears as of November 28, 2000, was $16,176.34. Superior Bank agreed to postpone the December 4 sale if Gabel made a lump sum payment of $5,000 on or before November 30, 2000, and thereafter made 18 monthly payments of $1,629.96 on the 15th day of each month, commencing on December 15, 2000. The agreement also required Gabel to maintain insurance coverage on the property and pay property taxes. In addition, Gabel promised to keep payments current on the first trust deed held by World Savings.
The agreement also states: "Borrower admits and recognizes that any and all postponements of a Trustee's Sale under this Agreement is done by mutual consent of the Borrower and Lender under California Civil Code § 2924g(c)(2) and that the sale may be postponed from time to time until the loan is fully reinstated or the foreclosure sale is consummated."
After Gabel signed the agreement, Superior Bank directed FNFS to postpone the December 4 trustee's sale to December 12, 2000, to give Superior Bank sufficient time to obtain a signature from its corporate office in Florida. On November 11, 2000, the agreement was completely executed, and the December 12 sale date was postponed to March 12, 2001. The sale was then postponed to March 21, 2001, and again to March 27, 2001. Gabel testified that he received no notice of the postponed sale dates after he signed the agreement.
In October 2000, Gabel sent Superior Bank a check for $5,004, which satisfied the initial payment requirement under the agreement. Gabel timely paid the December 15 installment. In January 200l, Superior Bank informed Gabel that it would no longer accept payments from him unless he could demonstrate that taxes and insurance on the property were current. Gabel informed Superior Bank that the taxes and insurance were being paid through the World Savings impound account and sent bank statements showing that the insurance and taxes were being paid. Gabel sent Superior Bank his January and February payments by a Western Union money transfer for $3,259, which was wired directly into Superior Bank's account. Superior Bank did not return the payment.
Superior Bank was not satisfied that the insurance and taxes were being paid and verbally informed Gabel that it would refuse to accept his March payment and would block the wire account to prevent him from sending another money wire.
On March 26, 2001, Superior Bank authorized FNFS to conduct the trustee's sale on the property, based on the default of the March 15, 2001, payment under the agreement and failure to provide proof of property taxes being current and hazard insurance being in place. The trustee's sale was held on March 27, 2001, and the property was sold at public auction for $111,934.60 to James Butler.
Gabel, relying on the language in the forbearance agreement that any sale date would be by mutual agreement of the parties, was out of town at the time of the trustee's sale. He did not know his house had been sold until an eviction notice was posted on his property in April 2001.
Gabel filed a second amended complaint against Butler, Superior Bank and FNFS alleging breach of contract, negligence, civil conspiracy, and negligent and intentional interference with economic relations.
FNFS filed a demurrer. The trial court sustained the demurrer without leave to amend as to the breach of contract claim and overruled the demurrer to the remaining claims. FNFS filed an answer and then filed a motion for summary judgment or, in the alternative, for summary adjudication. The trial court granted summary adjudication as to the conspiracy claim and claim for negligent interference with economic relations, leaving the claims of negligence and intentional interference with economic relations for trial.
Superior Bank went into receivership and Butler was voluntarily dismissed from the action, leaving FNFS as the sole defendant.
A six-day jury trial ended with a verdict in favor of Gabel for $450,000 and damages of $127,500 apportioned to FNFS.
DISCUSSION
I. FNFS's Appeal
A. Nonjudicial Foreclosure Statutes
A comprehensive statutory scheme governs nonjudicial foreclosure sales in California. The statutes have three purposes: "'(1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.'" (Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 440.)
Upon default by the trustor, the beneficiary may declare a default and proceed with a nonjudicial foreclosure sale. The foreclosure process is commenced by the recording of a notice of default and election to sell by the trustee. After the notice of default is recorded, the trustee must wait three calendar months before proceeding with the sale. After the three-month period has elapsed, a notice of sale must be published, posted and mailed 20 days before the sale and recorded 14 days before the sale. (Civ. Code, § 2924 et seq.)
To be effective, a copy of the notice of trustee's sale--at least 20 days prior to the sale--must be mailed by registered or certified mail, postage prepaid, to the trustor, sent to his or her last known address if different from the address listed on the deed of trust. (Civ. Code, § 2924b, subd. (b)(2).) The trustor need not receive actual notice of the trustee's sale so long as notice is provided to the trustor that is in compliance with the statute. (Strutt v. Ontario Sav. & Loan Assn. (1970) 11 Cal.App.3d 547, 553-554.)
The statutes provide the trustor with opportunities to prevent foreclosure by curing the default. The trustor may make back payments to reinstate the loan up until five business days prior to the date of the sale, including any postponement. (Civ. Code, § 2924c, subd. (a)(1).) Additionally, the trustor has a right of redemption under which the trustor may pay all amounts due at any time prior to the sale to avoid loss of the property. (§§ 2903, 2905.)
B. The Foreclosure Sale
On appeal from the denial of a motion for JNOV, an appellate court must review the record de novo and make an independent determination whether there is any substantial evidence to support the jury's findings. (Paykar Constructions, Inc. v. Spilat Construction Corp. (2001) 92 Cal.App.4th 488, 493-494; Tognazzini v. San Luis Coastal Unified School Dist. (2001) 86 Cal.App.4th 1053, 1057-1058.) The scope of our review is limited to determining whether there is any substantial evidence, contradicted or not, to support the jury's verdict. (Begnal v. Canfield & Associates, Inc. (2000) 78 Cal.App.4th 66, 72.) The court must accept as true the evidence supporting the verdict, disregard conflicting evidence, and indulge every legitimate inference to support the verdict. (Ibid.) If sufficient evidence supports the verdict, a reviewing court must uphold the trial court's denial of the JNOV motion. (Shapiro v. Prudential Property & Casualty Co. (1997) 52 Cal.App.4th 722, 730.)
A wrongful foreclosure claim may be based on a common law tort theory. (Munger v. Moore (1970) 11 Cal.App.3d 1, 7.) To recover on a negligence claim, the plaintiff must prove the existence of a legal duty, breach of that duty, causation, and damages or injury. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 292-293.) Whether a duty of care exists is a question of law. (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 397.) The duty of a foreclosing trustee is to ensure the sale is fairly conducted, according to proper procedures, to achieve the highest possible price. This duty runs to both the beneficiary and the trustor. (Residential Capital v. Cal-Western Reconveyance Corp. (2003) 108 Cal.App.4th 807, 825.)
FNFS contends that it did all that it was required to do under the nonjudicial foreclosure statutes. It claims that it had no duty to protect the property for Gabel's benefit or to investigate the status of the loan before conveying title at the trustee's sale. We disagree. In I.E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 287-288, our Supreme Court said, "The rights and powers of trustees in nonjudicial foreclosure proceedings have long been regarded as strictly limited and defined by the contract of the parties and the statutes." (Italics added.) In that case, the Supreme Court "expressly preserved a long line of cases imposing duties on a trustee in addition to those statutorily established." (Karoutas v. HomeFed Bank (1991) 232 Cal.App.3d 767, 773; see also United States Cold Storage of California v. Great Western Savings & Loan Assn. (1985) 165 Cal.App.3d 1214, 1227 ["'the only requirements of notice are those expressly prescribed by the terms of the instrument and applicable statutes'" (italics added)].)
Breach of a promise to postpone a foreclosure sale may impose liability for damages. (E.g., Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 670-675.) As stated by the court in Residential Capital v. Cal-Western Reconveyance Corp., supra, 108 Cal.App.4th 807, 822-823: "The agreement to postpone the sale under section 2924g cannot be disregarded in evaluating whether the sale procedure was substantially defective. . . . [¶] The right of the trustor to postpone the foreclosure sale by agreement with the beneficiary is as important to the protection of the trustor's property from wrongful foreclosure as are the notice [of sale] requirements . . . . The notice requirements ensure a fair sale; the postponement right prevents a sale when there may be no default by the trustor. We see no meaningful distinction in the importance of the two sets of trustor rights."
These cases make clear that a trustee is bound not only by statutory notice provisions but also by the terms of any contract between the parties modifying those statutory provisions. (See Heritage Oaks Partners v. First American Title Ins. Co. (Sept. 19, 2007, B189537) __ Cal.App.4th __ [2007 D.A.R. 14599, 14601] ["California courts have refused to impose duties on the trustee other than those imposed by statute or specified in the deed of trust"].) This rule also disposes of FNFS's argument that the forbearance agreement imposes no additional duties on it because it was not a signatory to the agreement.
FNFS's remaining arguments that Gabel had notice of the postponed sale dates and that Gabel "self-created" his damages are contrary to Gabel's testimony that he did not have notice of the postponed sale dates and that he attempted to make the March payment but was precluded from doing so by the bank. The evidence shows that Gabel did everything possible to uphold his end of the bargain. He made the December, January and February payments and Superior Bank accepted those payments. He attempted to make the March payment but Superior Bank refused to accept it.
The court in Bank of America v. LaJolla Group II (2005) 129 Cal.App.4th 706, 712, succinctly summarized the rights of a trustor and the duties of a trustee under a power of sale: "A power of sale in a deed of trust is a creature of contract, arising from the parties' agreement. 'The power of sale only exists if it is expressly granted by the trustor in the security documents.' (4 Miller & Starr, Cal. Real Estate (3d ed. 2003) § 10:123, p. 381.) The statutory scheme governing nonjudicial foreclosures does not expand the beneficiary's sale remedy beyond the parties' agreement, but instead provides additional protection to the trustor: 'Statutory provisions regarding the exercise of the power of sale provide substantive rights to the trustor and limit the power of sale for the protection of the trustor.' (Ibid.) As is typical, the deed of trust involved in this case allows the beneficiary to exercise its power of sale only if an "event of default" occurs. If, after a default, the trustor and beneficiary enter into an agreement to cure the default and reinstate the loan, no contractual basis remains for exercising the power of sale."
After Gabel and Superior Bank entered into the forbearance agreement, the terms of that agreement governed the conduct of any foreclosure sale. FNFS breached its duty by holding the sale without obtaining Gabel's consent.
II. Gabel's Appeal
A. Valuation
The proper measure of damages for wrongful foreclosure is the fair market value of the property at the time of the foreclosure sale, minus all encumbrances and liens against the foreclosed property. (Munger v. Moore, supra, 11 Cal.App.3d 1, 11.)
Gabel asserts that the application of that rule here is unfair. He argues that because the foreclosure was wrongful, his damages should be measured by the value of the property at the time of trial. We disagree. The rule in Munger is an application of the venerable benefit of the bargain doctrine. "Under the benefit of the bargain doctrine we must consider the loss sustained by [plaintiff] rather than the value with which she parted." (Pepitone v. Russo (1976) 64 Cal.App.3d 685, 689.)
Moreover, Gabel's argument is irreconcilable with the clearly established legal principal that the trustee's deed conveys to the purchaser the trustor's interest as of the date that the deed was recorded. The purchaser's title is free and clear of all rights of the trustor or anyone claiming under or through the trustor. (See Homestead Savings v. Darmiento (1991) 230 Cal.App.3d 424, 436 [court rejected contention that a bona fide purchaser for value must take the property subject to the trustor's interest in the property].)
B. Attorney Fees
In a separate appeal, Gabel contends the trial court erred in denying his request for attorney fees as a prevailing party under Civil Code section 1717 and Code of Civil Procedure section 1021. We agree with the trial court that neither of these statutes applies in this case.
Gabel relies on the attorney fee provision in paragraph 6(E) of the balloon note which states: "If the Note Holder has required me to pay immediately in full as described above, the Note Holder will have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees."
Gabel also relies on paragraph 7 of the trust deed which states: "If . . . there is a legal proceeding that may significantly affect Lender's rights in the Property . . ., then Lender may do and pay for whatever is necessary to protect the value of the Property . . . includ[ing] . . . paying reasonable attorneys' fees . . . ."
In addition, Gabel argues that the forbearance agreement contains an implicit attorney fee clause because he was charged foreclosure fees and costs (which included attorney fees) and the agreement states it ratifies the loan documents.
Civil Code section 1717 provides for an award of attorney fees in any action "on a contract" where the contract provides for the recovery of attorney fees and costs incurred by the prevailing party to enforce the contracts. Section 1717 does not apply to tort claims. (Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 708.) Where non–contract claims are involved, it is the nature of the claims and the language of the attorney fee provision that determine whether an award is proper. (Id. at pp. 708-709.) "'If a contractual attorney fee provision is phrased broadly enough, ... it may support an award of attorney fees to the prevailing party in an action alleging both contract and tort claims: "[P]arties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract. "'" (Id. at p. 708, quoting Santisas v. Goodin (1998) 17 Cal.4th 599, 608.) For example, a provision in a contract that states "in any 'lawsuit or other legal proceeding' to which 'this Agreement gives rise'" has been held enough to encompass recovery of attorney fees for tort actions. (Xuereb v. Marcus & Millichamp, Inc. (1992) 3 Cal.App.4th 1338, 1342.)
The language in the loan documents is not broad enough to provide a basis for awarding attorney fees in a negligence action. The language in the balloon note and trust deed provide for attorney fees in very limited circumstances not present here.
Gabel nonetheless argues that he is entitled to fees because Civil Code section 1717 creates a reciprocal right to attorney fees where, as here, the contract provides only a unilateral right. (Santisas v. Goodin, supra, 17 Cal.4th 599, 611.) This argument is without merit. The right to reciprocity exists only in actions based on contract, not those based in tort. (Moallem v. Coldwell Banker Com. Group, Inc. (1994) 25 Cal.App.4th 1827, 1832.)
Gabel's contention that he has a right to recover attorney fees as damages under Code of Civil Procedure section 1021 fares no better. Although section 1021 permits recovery of attorney fees by agreement between the parties, and does not limit recovery of fees to actions on the contract, to determine whether a prevailing party may recover attorney fees for non-contractual claims under section 1021, the court must look to the language of agreement. (In re Chen (N.D.Cal. 2006) 345 B.R. 197, 201.) As discussed above, the attorney fee provisions in the loan documents pertain only to a very limited set of circumstances not present here.
Gabel's final contention is that the forbearance agreement gives him a right to recover attorney fees in this litigation because he was required to pay attorney fees for preparation of the agreement. Gabel cites no authority for this argument, and we need not consider it.
We affirm the judgment for damages and the order denying Gabel's motion for attorney fees. We affirm the orders denying FNFS's motion for JNOV and new trial. Each party is to bear its own costs.
We concur: GILBERT, P.J., YEGAN, J.