Opinion
H024589.
11-21-2003
DODIE GAINES, Plaintiff and Appellant, v. WASHINGTON MUTUAL, et al., Defendants and Respondents.
Plaintiff Dodie Gaines was the high bidder on real property at a nonjudicial foreclosure sale pursuant to a deed of trust. A few hours after the foreclosure sale, respondent Washington Mutual (WM), the beneficiary of the deed of trust, realized that the owners of the real property (hereafter the homeowners) had made an untimely reinstatement attempt on the Saturday prior to the Tuesday foreclosure sale. WM decided to accept the homeowners untimely reinstatement. WM did not issue a trustees deed to Gaines, and it returned Gainess money one day after the foreclosure sale. Gaines filed a breach of contract action against WM seeking damages. WM obtained summary judgment on the ground that the contract arising from the foreclosure sale was "void." Gaines appeals. We conclude that the contract between WM and Gaines was not "void," and therefore reverse the judgment.
The respondents also include the trustee, California Reconveyance Company (CRC) and WMs predecessor, Great Western Bank (GW). Since the positions of CRC and GW are indistinguishable in this appeal from the position of WM, we will generally refer to these entities collectively as WM. Only where some action distinguishes these entities will they be separately referenced.
Gaines also included the homeowners as defendants, but he only sought judgment against them on his requests for specific performance and quiet title. Gaines abandoned his equitable claims at the hearing on the summary judgment motion and does not address them on appeal. Therefore, our analysis deals solely with Gainess breach of contract cause of action for damages against WM, CRC and GW.
I. Background
WM is the beneficiary of a deed of trust securing a note. The deed of trust is on real property owned by the homeowners, and the homeowners are the debtors on the note. The homeowners defaulted on the note, and WM recorded a notice of default in December 1998 against the real property. In March 1999, WM recorded a notice of trustees sale of the real property setting a foreclosure sale for April 5, 1999. However, prior to the scheduled foreclosure sale, WM and the homeowners entered into a repayment agreement, and the date of the foreclosure sale was thereafter repeatedly postponed by mutual agreement. The repayment agreement specifically stated that there would be no grace period and that every payment must be received on or before the payments due date. The homeowners thereafter defaulted on their payments under the repayment agreement, and a foreclosure sale was set for Tuesday, August 3, 1999.
On Friday, July 30, 1999, the homeowners contacted WM to find out the amount necessary to reinstate the loan. They were advised that the reinstatement amount was $4,269.86. On Saturday, July 31, 1999, the homeowners tendered a cashiers check in that amount at a WM retail bank branch. The branch forwarded the check to the WM foreclosure department in Northridge, California by interoffice mail. The branch failed to follow WM procedures that required the branch to make a telephone call to the foreclosure department apprising the foreclosure department of the tender of the check.
At 9:40 a.m. on Tuesday, August 3, 1999, WM instructed the trustee that its opening bid would be $133,080.88. The foreclosure sale was held less than an hour later, and Gaines was the high bidder with a bid of $133,081. That afternoon, the check forwarded by the branch was received by the foreclosure department. The following day, Gaines was notified by WM that the foreclosure sale had gone forward in error, and his undeposited funds were returned. No trustees deed was ever issued.
On December 27, 1999, Gaines filed an action against WM seeking damages for breach of contract. WM admitted most of the factual allegations of the complaint but asserted as an affirmative defense that the alleged contract was "null and void" due to the fact that the homeowners had "cured their default and reinstated the Note" prior to the foreclosure sale.
The homeowners filed a cross-complaint against WM for equitable indemnity, but they subsequently dismissed the cross-complaint. WM thereafter took over the defense of the homeowners.
In March 2002, WM filed a motion for summary judgment. The sole basis for the motion was that any contract was "void" thereby precluding breach. The parties disputed whether the July 31 tender of the check "cured" the default prior to the foreclosure sale and whether the contract of sale was "void." Gaines argued that the July 31 tender did not make the contract "void" because WM was not obligated to accept this untimely reinstatement tender and there were no statutory violations in the procedures leading up to the sale.
The superior court expressed the belief that "we are really in equity . . . as between these parties," and it orally granted the summary judgment motion on April 9, 2002. On June 6, 2002, Gaines filed a notice of appeal. In August 2002, the court issued a written order granting summary judgment and entered a judgment dismissing Gainess action.
The court indicated that it was "concerned" that "this issue is ripe certainly for appellate review, if thats appropriate."
II. Analysis
"Appellate review of a ruling on a summary judgment or summary adjudication motion is de novo." (Brassinga v. City of Mountain View (1998) 66 Cal.App.4th 195, 210.) "The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) "[A] defendant moving for summary judgment [is not required] to conclusively negate an element of the plaintiffs cause of action. . . . All that the defendant need do is to show[] that one or more elements of the cause of action . . . cannot be established by the plaintiff." (Aguilar at pp. 853-854, citations and quotation marks omitted.) The party moving for summary judgment bears "the burden of persuasion" that there are no triable issues of material fact and that the moving party is entitled to judgment as a matter of law. (Aguilar at p. 850.) The moving party also "bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact." (Id. at p. 850.) "A prima facie showing is one that is sufficient to support the position of the party in question." (Aguilar at p. 851.)
A. Disputed Factual Issue
As the moving party below, WM bore the burden of showing that Gaines could not prove an element of his cause of action. In this case, the only element in dispute was the validity of the contract of sale between Gaines and WM. WM put forth evidence demonstrating that three calendar days prior to the foreclosure sale the homeowners tendered an amount sufficient to reinstate the loan at a WM retail bank branch. It was undisputed that this tender occurred after the expiration of the reinstatement period and that the tender was not sufficient to satisfy the entire debt but only to cure the default. WM asserted that this tender immediately cured the default thereby invalidating the subsequent foreclosure sale. Gaines, on the other hand, claimed that there was a factual dispute as to whether WM in fact accepted the homeowners tender prior to the foreclosure sale when the branch received the check rather than after the sale when the foreclosure office received the check.
WM concedes that it was under no obligation to accept the homeowners untimely reinstatement tender on July 31. "Reinstatement of a monetary default under the terms of an obligation secured by a deed of trust, or mortgage may be made at any time within the period commencing with the date of recordation of the notice of default until five business days prior to the date of sale set forth in the initial recorded notice of sale" or "the date of sale declared at the time of the postponement." (Civ. Code, § 2924c, subd. (e), emphasis added.) Here, the homeowners did not attempt to cure the default "five business days prior" to the scheduled date of sale. Their tender of the cashiers check occurred just two business days prior to the sale date. (Civ. Code, §§ 7, 9 [every day is a business day except a Sunday or a holiday].) Since WM was not obligated to accept the untimely tender, it follows that WMs decision to accept the check was an exercise of discretion by WM. The factual question that arises is when this decision was made.
Once the reinstatement period has passed, "the trustor [still] possesses an equity of redemption, which permits the trustor to pay all sums due prior to the sale of the property at foreclosure and thus avoid the sale." (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830, emphasis added.) However, here, the homeowners did not attempt to redeem the property by paying "all sums due," that is, the total amount of the debt, but only made an untimely attempt to reinstate the loan.
WM, relying on Commercial Code section 3310, insists that the fact that the retail bank branch received the cashiers check from the homeowners establishes that WM made a decision on July 31 to accept the untimely reinstatement. "Unless otherwise agreed, if a certified check, cashiers check, or tellers check is taken for an obligation, the obligation is discharged to the same extent discharge would result if an amount of money equal to the amount of the instrument were taken in payment of the obligation." (Coml. Code, § 3310, subd. (a).) This statute does not tell us when WM decided to allow the homeowners to make an untimely reinstatement. Had the homeowners tendered their cashiers check during the reinstatement period, we would probably agree that the default was cured upon the branch receiving the check. However, at the time the homeowners tendered their check, the reinstatement period had expired and the homeowners had only the right to redeem the property by paying the entire debt. They did not attempt to do so. Instead, they submitted a check that was not sufficient to discharge their obligation but merely to defray a small part of their obligation. Unless WM decided to permit an untimely reinstatement, its acceptance of the check spoke of nothing more than its acceptance of a small payment on the homeowners much larger obligation to WM.
As the moving party, WM has failed to carry its burden of producing evidence that whoever received the homeowners cashiers check at WMs retail branch was authorized to make, and made, a decision to permit an untimely reinstatement prior to forwarding the check to WMs foreclosure department. The evidence produced by WM in support of its motion suggests the contrary. The fact that the branch was required to forward the check to the foreclosure department and to contact the foreclosure department by telephone supports a reasonable inference that all such decisions were to be made by the foreclosure department rather than by the branch. The evidence regarding the foreclosure departments processing of the check produced by Gaines in opposition to WMs motion could support a reasonable inference that the foreclosure department made the decision to allow an untimely reinstatement after the foreclosure sale.
Without proof that reinstatement, as opposed to an untimely attempt at reinstatement, actually occurred prior to, rather than after, the foreclosure sale, WM is left to argue that an untimely attempt at reinstatement is sufficient to invalidate a foreclosure sale. We proceed to address that contention in the next section of this opinion.
B. The Legal Issue
When the performance of a contract is impossible, the contract is deemed "void." (Civ. Code, § 1598.) A void contract has no legal existence and binds no one. (R. M. Sherman Co. v. W. R. Thomason, Inc. (1987) 191 Cal.App.3d 559, 563.) However, the circumstances under which a completed nonjudicial foreclosure sale can be deemed "void" are very limited. "Although a nonjudicial foreclosure sale is generally complete upon acceptance of a bid by the trustee, the conclusive presumption does not apply until a trustees deed is delivered. Thus, if there is a defect in the procedure which is discovered after the bid is accepted, but prior to delivery of the trustees deed, the trustee may abort a sale to a bona fide purchaser, return the purchase price and restart the foreclosure process. [Citations.] Where there is no irregularity in a nonjudicial foreclosure sale and the purchaser is a bona fide purchaser for value, a great disparity between the sales price and the value of the property is not a sufficient ground for setting aside the sale. [Citation.] However, an irregularity in the nonjudicial foreclosure sale coupled with a gross inadequacy of price may be sufficient to set aside the sale, where the conclusive presumption does not come into effect because the trust deed has not yet been delivered." (Moeller v. Lien (1994) 25 Cal.App.4th 822, 832.) As Moeller indicates, even when no trustees deed has issued, a completed foreclosure sale will not be set aside unless there has been, at the very least, "an irregularity" in the foreclosure sale procedures. The question then becomes what type of "irregularity" in the foreclosure sale procedures is sufficient to invalidate the sale.
The cases addressing this issue shed some light on the type of irregularity that will merit invalidation of a foreclosure sale. In Lichty v. Whitney (1947) 80 Cal.App.2d 696, the property owner made a timely tender of full payment of the debt prior to the foreclosure sale. Since, under the statutory procedures, such a tender should have redeemed the property, the subsequent sale of the property was void. (Lichty at pp. 699-702.) Lichty merely reflects the unsurprising proposition that satisfaction of the entire debt prior to the foreclosure sale invalidates the sale.
Property may be redeemed only by payment of the entire debt. Reinstatement merely involves the payment of the current default.
Bisno v. Sax (1959) 175 Cal.App.2d 714 was an equitable action between the creditor and the debtor. The debtor had made one monthly payment one day late under a reinstatement plan. The creditor held the payment for a few days, rejected it and then foreclosed on the property. The debtor brought an equitable action seeking to stop the foreclosure. The trial court ruled against him. More than a month after the rejection of the payment, the property was sold at a foreclosure sale to a third party who had knowledge of the equitable action and may have been acting as the agent of the creditor. (Bisno at pp. 730, 732-733.)
On appeal, the court held that the rejection of the payment was improper and that the foreclosure sale should not have occurred. "Speaking generally, the acceptance of payment of a delinquent installment of principal or interest cures that particular default and precludes a foreclosure sale based upon such preexisting delinquency. The same is true of a tender which has been made and rejected." (Bisno at p. 724.) The court held that the one-day delay in payment did not violate the reinstatement plan because the note and deed of trust did not say that time was of the essence and such a penalty for the one-day delay would be "a forfeiture, a thing which equity abhors." (Bisno at pp. 724-725.) The court never stated that the foreclosure sale was "void," but it invalidated the sale. (Bisno at pp. 731-733.)
Bisno was an equitable action between the creditor and debtor, and the one-day-late payment was apparently made during the reinstatement period. Bisno therefore stands for the proposition that a reinstatement payment that is timely under the agreement between the creditor and debtor precludes foreclosure and may serve to invalidate a sale.
Tomczak v. Ortega (1966) 240 Cal.App.2d 902 was an unlawful detainer action brought by the creditor against the debtor. During the reinstatement period, the debtor had paid the amount that the creditor had told the debtor would be sufficient to reinstate. (Tomczak at pp. 905-906.) However, a miscalculation by the creditor resulted in $56.69 remaining unpaid. (Tomczak at p. 906.) The creditor then foreclosed based on the $56.69 default and purchased the property at the sale. The court of appeal held that the foreclosure sale was "invalid as between appellants [debtor] and respondents [creditor]." (Tomczak at pp. 906-907.) Tomczak tells us that a timely reinstatement payment of the amount demanded by the creditor precludes foreclosure and will stand as a defense against an unlawful detainer action by the creditor against the debtor.
Little v. CFS Service Corp. (1987) 188 Cal.App.3d 1354 was, like the case before us, an action by a third party against the creditor for damages. Four days after a foreclosure sale at which the third party purchased the property, but before the issuance of a trustees deed, the creditor realized that it had failed to notify the debtor, the junior lienholder and a judgment creditor of the foreclosure sale as required by statute. (Little at p. 1357.) The creditor immediately returned the third partys unnegotiated checks along with interest. (Little at p. 1357.) The court held that the foreclosure sale was "void" due to the absence of proper notice. The court noted that the general rule was that "defects and irregularities in a sale under a power render it merely voidable and not void." (Little at p. 1358.) However, an exception to the general rule provided that a sale was "void" if it was "substantially defective" and the defect was the violation of a statutory mandate. (Little at p. 1358.) Because there had been a "very substantial notice defect" in violation of a statutory mandate, the sale was void and could not form the basis for a breach of contract action for damages. (Little at pp. 1360-1362.) Little stands for the proposition that substantial violations of mandatory statutory foreclosure sale procedures may invalidate a foreclosure sale.
In Moeller v. Lien, supra, 25 Cal.App.4th 822, the debtor defaulted, and the creditor began foreclosure proceedings. (Moeller at p. 827.) The debtor failed to cure the default prior to the foreclosure sale, and a third party purchased the property at the foreclosure sale. (Moeller at p. 828.) The debtor had apparently been unaware of his right to postpone the foreclosure sale for one day. After the sale, the debtor tendered to the creditor an amount sufficient to cure the default. The creditor rejected the tender. (Moeller at p. 828.) A trustees deed was thereafter issued and recorded. (Moeller at p. 828.) Although there had been no irregularities in the sale procedures, the debtor sought to invalidate the sale on the ground that the sale price was grossly inadequate. (Moeller at p. 829.) The Court of Appeal rejected the debtors attempt to invalidate the sale. It held that the absence of irregularities coupled with the trustees deeds recitals precluded the invalidation of the sale. (Moeller at p. 833-835.) Moeller says that after the issuance of a trustees deed a sale will not be invalidated if there were no irregularities in the sale procedures.
In 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279 (6 Angels), the creditor erroneously told the trustee to set the opening bid at $10,000 rather than $100,000. A third party was the high bidder at the foreclosure sale with a bid of $10,000.01. The creditor instructed the trustee not to issue a trustees deed and to return the third partys funds. (6 Angels at p. 1282.) The third party obtained a judgment in its favor on a quiet title cause of action. (6 Angels at p. 1283.) The Court of Appeal rejected the creditors claim that its erroneous instruction to the trustee was a procedural irregularity that invalidated the foreclosure sale. "[T]his error, which was wholly under [the creditors] control and arose solely from [the creditors] own negligence, falls outside the procedural requirements for foreclosure sales described in the statutory scheme . . . ." (6 Angels at p. 1285.) 6 Angels held that an error caused by the creditors negligence that is not a violation of the statutory foreclosure sale procedures does not merit invalidation of a foreclosure sale.
In Residential Capital, LLC v. Cal-Western Reconveyance Corp. (2003) 108 Cal.App.4th 807 (Residential Capital), the debtor "cured the default and reinstated the loan" under a repayment plan with the creditor, and the creditor agreed to postpone the scheduled foreclosure sale. The creditor sent an e-mail to the trustee the day before the sale telling the trustee that the sale had been postponed. However, the trustee did not read the e-mail, and the sale was held. A third party was the high bidder at the sale. (Residential Capital at pp. 811-812.) The trustee learned of the postponement the day after the sale and notified the third party that it had acted without authority in conducting the sale. No trustees deed issued, and the trustee returned the third partys unnegotiated checks with interest. The third party then sued the creditor and the trustee for breach of contract, breach of the implied covenant, negligence and negligent misrepresentation. (Residential Capital at p. 812.)
On cross-motions for summary judgment, the trial court agreed with the trustee and the creditor that the trustees lack of authority to conduct the sale due to the postponement agreement rendered the sale void. (Residential Capital at pp. 812-813.) On appeal, the third party acknowledged that the trustee and creditor had failed to comply with a mandatory statutory duty to honor the postponement agreement, but the third party maintained that this statutory violation did not invalidate the foreclosure sale. (Residential Capital at pp. 813-814, 820.) The Court of Appeal concluded that the trustees statutory duty to postpone the sale pursuant to the postponement agreement was "as important" as the statutory notice requirements that were violated in Little and merited invalidation of the sale in that case. (Residential Capital at pp. 822-823.) The court concluded that the violation of the statutory duty invalidated the sale, and therefore the third party was not entitled to recover damages from the trustee or the creditor. (Residential Capital at p. 823.) Residential Capitals holding is essentially the same as that in Little. A substantial violation of the statutory foreclosure sale procedures will invalidate a foreclosure sale and preclude an action for damages by the high bidder against the creditor and trustee, at least where no trustees deed has issued.
Taken together, these cases hold that, where no trustees deed has issued, a completed foreclosure sale will not be set aside unless there has been a substantial violation of a mandatory statutory foreclosure sale procedure. If WM can prove that it actually made a decision prior to the foreclosure sale to accept the homeowners untimely reinstatement tender, it may be able to establish that its failure to postpone the foreclosure sale was a violation of a mandatory statutory foreclosure sale procedure. Such proof could entitle WM to prevail on its affirmative defense that the contract was invalid. However, if WM cannot establish that it made a decision to accept the tender prior to the sale or if it fails to prove that the sale took place in violation of a mandatory statutory procedure, WM cannot prevail on its affirmative defense. As WM has not yet carried its burden of proving its affirmative defense, the superior court should not have granted WMs summary judgment motion.
III. Disposition
The judgment of dismissal is reversed as to WM, CRC and GW. The superior court is directed to vacate its order granting summary judgment and to enter a new order denying the motion of WM, CRC and GW for summary judgment but granting the homeowners motion for summary judgment. The court shall modify its judgment of dismissal to reflect that the action is dismissed solely as to the homeowners. Gaines shall recover his appellate costs.
WE CONCUR: Rushing, P.J., Wunderlich, J.