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In re 346 El Monte Rd.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
Apr 30, 2018
No. D072134 (Cal. Ct. App. Apr. 30, 2018)

Opinion

D072134

04-30-2018

In re 346 El Monte Road, El Cajon, CA 92020-3022 NBS DEFAULT SERVICES, LLC, Petitioner; DITECH FINANCIAL LLC, Claimant and Appellant; PENNY DUSBABEK-MATA et al., Claimants and Respondents.

The Dreyfuss Firm and Lawrence J. Dreyfuss for Claimant and Appellant Ditech Financial, LLC. Penny Dusbabek-Mata, in pro. per., for Claimants and Respondents.


NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 37-2016-00024706-CU-PT-CTL) APPEAL from a final order of the Superior Court of San Diego County, Lisa C. Schall, Judge. Reversed and remanded with directions. The Dreyfuss Firm and Lawrence J. Dreyfuss for Claimant and Appellant Ditech Financial, LLC. Penny Dusbabek-Mata, in pro. per., for Claimants and Respondents.

The successful claimant in this case, Penny Dusbabek-Mata (Dusbabek-Mata), owned a home subject to a first deed of trust, which secured a loan with a balance of $260,000, and a junior deed of trust, which secured a loan of $98,000. In February 2016, the trustee of the first deed of trust conducted a foreclosure sale and the successful bidder paid approximately $75,000 more than was needed to satisfy the first deed of trust. Because Dusbabek-Mata and the holder of the junior deed of trust, Ditech Financial LLC (Ditech), could not agree on disposition of the surplus, the trustee deposited the surplus funds in the trial court and filed a petition in which it asked the trial court to resolve the dispute.

The trial court erroneously awarded the disputed funds to Dusbabek-Mata. There was no defect in the junior deed of trust Ditech held and under Civil Code section 2924k, subdivision (a)(3), Ditech was entitled to the surplus. Contrary to the trial court's finding on Dusbabek-Mata's motion for reconsideration, Ditech's claim to the funds was not barred by Commercial Code section 3118. Although Ditech's predecessor in interest had, more than six years earlier, demanded payment of amounts which were delinquent, it never accelerated the loan or initiated foreclosure proceedings and thus it did not trigger commencement of the six-year limitation period provided by Commercial Code section 3118. However, even if the earlier demand had triggered the time period provided under Commercial Code section 3118, Ditech's claim to the surplus was not subject to the Commercial Code limitation period. Rather it was governed by a 10-year limitation period, running from date the last payment on the loan was due, set forth in section 882.020.

The trial court also awarded about $1900 to the City of El Cajon (City) for a lien for sewer services and refuse collection charges. Ditech asserted in the trial court that its lien had priority over the City's lien. The City was notified of this appeal and served with the briefs on appeal, but has chosen not to participate. The trial court and appellate court records contain no contention by the City regarding the priority of its lien vis-a-vis Ditech's lien. We therefore disregard any potential claim by the City to the proceeds of the sale.

All further statutory references are to the Civil Code unless otherwise indicated.

Accordingly, we reverse the trial court's order and direct that it enter an order awarding the surplus to Ditech.

FACTUAL AND PROCEDURAL HISTORY

According to its petition, trustee NBS Default Services, LLC (NBS) conducted a foreclosure sale on behalf of the beneficiary of the first deed of trust on February 18, 2016. The property sold for $335,100 and following the sale there was a net surplus of $75,252.06.

On April 25, 2016, Dusbabek-Mata received notice of the surplus and on the same day made a claim to it. Ditech received notice of the surplus on May 3, 2016, and submitted a claim to the surplus eight days later. Dusbabek-Mata objected to Ditech's claim, and on July 20, 2016, NBS filed its petition asking the trial court to resolve the dispute, and deposited the surplus funds in the trial court.

Initially, the trial court issued a minute order resolving the claim in Ditech's favor. However, Dusbabek-Mata filed a motion for reconsideration, and after hearing the motion, the trial court determined that Ditech's claim to the surplus funds was barred by Commercial Code section 3118, subdivision (a). In particular, the court found that by virtue of a default notice Ditech's predecessor sent to Dusbabek-Mata in 2008, her obligation under the note was accelerated and the six-year statute of limitation provided by Commercial Code section 3118 commenced. The court directed the clerk of the court to distribute the deposited funds to Dusbabek-Mata and City. Ditech filed a timely notice of appeal.

Commercial Code section 3118, subdivision (a) states: "(a) Except as provided in subdivision (e), an action to enforce the obligation of a party to pay a note payable at a definite time shall be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date."

Ditech asked the trial court to stay its order and the request was denied. Ditech filed a petition for a writ of supersedeas, which we denied.

DISCUSSION

I

As Ditech points out, nothing in the record shows that Dusbabek-Mata's obligations under the note were ever accelerated. The default notice Ditech's predecessor in interest, Hong Kong & Shanghai Bank Corporation (HSBC), sent to Dusbabek-Mata on September 8, 2008, and on which the trial court relied, states that the note is in default and that $2,996.93 is due under the note. The notice further states that if the default is not cured, Dusbabek-Mata's obligations under the note will be accelerated and that foreclosure proceedings might commence. However, the notice of default did not itself accelerate the note and although such acceleration would have occurred under paragraph 17 of the deed of trust had foreclosure proceedings been initiated, no such proceedings were initiated by either HSBC or Ditech. The fact that the notice threatened acceleration did not amount to an actual acceleration sufficient to commence the limitation period. (See Trigg v. Arnott (1937) 22 Cal.App.2d 455, 458.) "It is obvious that an acceleration clause which is optional in character cannot be regarded as self-operative since the parties to the contract have expressly and unequivocally conferred upon the holder of the instrument the right to elect whether or not he will exact the penalty which is exclusively for his benefit. Without some affirmative action on the part of the holder of a note containing an optional acceleration clause the statute of limitations is not set in motion for the theory of the statute is that a creditor has the full statutory period, whatever that may be, on any day of which he may of his own volition commence an action." (Ibid; citing Hoff v. Funkenstein (1880) 54 Cal. 233, 235.) As a practical matter, the letter the trial court relied upon is indistinguishable from the instrument interpreted in Trigg v. Arnott, which simply preserved HSBC's option to accelerate the loan. As Ditech points out, the fact the default letter did not accelerate the loan is of course confirmed by later monthly statements HSBC sent Dusbabek-Mata of her delinquency as due, but not the full amount of the loan.

The operative portion of HSBC's letter states: "If you do not cure this default within the specified time period, your obligation for payment of the entire unpaid balance of the loan will be accelerated and become due and payable immediately. If the amount that becomes due and payable is not paid, foreclosure proceedings may commence to acquire the Property by foreclosure and sale." Paragraph 17 of the deed of trust states that after the lender gives notice of default and a breach is not cured in a timely manner: "Lender, at Lender's option may declare all of the sums secured by this Deed of Trust to be immediately due and payable without further demand and may invoke the power of sale and any other remedies permitted by applicable law."

Because the note was never accelerated, the six-year limitation period set forth in Commercial Code section 3118, subdivision (a) never began running. However, even if that period had begun running with respect to the promissory note Dusbabek-Mata had given HSBC, it would not have deprived Ditech of its right to enforce its rights under the deed of trust. The rule is well-established that when a statute of limitations has expired with respect to an underlying promissory note, a beneficiary may nonetheless enforce its rights under a deed of trust, subject only to the time limits set forth in the Marketable Record Title Act (Act), section 880.020 et seq. (Miller v. Provost (1994) 26 Cal.App.4th 1703, 1706-1707; Nicolopulos v. Superior Court (2003) 106 Cal.App.4th 304, 309-310; Carson Redevelopment Agency v. Adam (1982) 136 Cal.App.3d 608, 610; see also Ung v. Koehler (2005) 135 Cal.App.4th 186, 190-191.)

Prior to adoption of the Act in 1982, the right to exercise the power of sale under a deed of trust never expired, because our cases had consistently recognized that a deed of trust actually gave the beneficiary title to the property, rather than a lien which might otherwise expire with expiration of the underlying debt. (See Ung v. Koehler, supra, 135 Cal.App.4th at pp. 192-200.) Under the Act, the right to enforce a deed of trust expires 10 years after the last payment under a promissory note is due. (§ 882.020, subd. (a)(1).) Here, the last payment on the note Ditech acquired was due on October 1, 2020; thus, as Ditech points out, its deed of trust would not expire until October 1, 2030.

II

Ditech's right to the surplus is provided by section 2924k, subdivision (a)(3), which gives junior encumbrancers the right to surplus proceeds from a nonjudicial foreclosure sale before payment to the trustor under the foreclosed deed of trust. Contrary to Dusbabek-Mata's contention, the record shows Ditech filed a timely claim to the surplus; Ditech received notice of the surplus on May 3, 2016, and made its claim on May 11, 2016, well within the 30-day period provided by section 2924j, subdivision (a)(4)(C). The fact Ditech did not record the assignment to it of the junior deed of trust and that NBS failed to provide Ditech notice of the surplus within 30 days of the sale, as required by section 2924j, subdivision (a), did not deprive Ditech of its right to make a claim within 30 days of actually receiving notice of the surplus. A strict interpretation of section 2924j would permit the negligent trustee of a senior deed of trust to deprive the beneficiary of a junior deed of trust of its right to a surplus under 2924k. Moreover, contrary to Dusbabek-Mata's contention, there is nothing in the record which indicates Ditech was the beneficiary under the foreclosed deed of trust and therefore had earlier notice of the surplus.

Section 2924k, subdivision (a) states: "(a) The trustee, or the clerk of the court upon order to the clerk pursuant to subdivision (d) of Section 2924j, shall distribute the proceeds, or a portion of the proceeds, as the case may be, of the trustee's sale conducted pursuant to Section 2924h in the following order of priority:
"(1) To the costs and expenses of exercising the power of sale and of sale, including the payment of the trustee's fees and attorney's fees permitted pursuant to subdivision (b) of Section 2924d and subdivision (b) of this section.
"(2) To the payment of the obligations secured by the deed of trust or mortgage which is the subject of the trustee's sale.
"(3) To satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority.
"(4) To the trustor or the trustor's successor in interest. In the event the property is sold or transferred to another, to the vested owner of record at the time of the trustee's sale."

Ditech's failure to record the assignment of the deed of trust might protect a trustee in NBS's position if it otherwise met its obligations under the statute and relying on the failure of an assignee to make a claim, distributed a surplus to a trustor or other junior lienholders. Here, however, NBS had actual notice of Ditech's interest and Ditech made a timely claim before any distribution; thus, Ditech's failure to record an assignment did not improve Dusbabek-Mata's position.

In sum, because the record shows Ditech had the right to the surplus under section 2924k, subdivision (a)(3) and its right had not expired, the trial court should have ordered that it receive the surplus.

DISPOSITION

The trial court's order directing payment of the surplus funds to Dusbabek-Mata and to City is reversed and remanded with instructions that it enter an order providing for payment of the funds to Ditech and providing Ditech with appropriate process by which it can recover those funds.

Ditech to recover its costs on appeal.

BENKE, Acting P. J. WE CONCUR: O'ROURKE, J. GUERRERO, J.


Summaries of

In re 346 El Monte Rd.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
Apr 30, 2018
No. D072134 (Cal. Ct. App. Apr. 30, 2018)
Case details for

In re 346 El Monte Rd.

Case Details

Full title:In re 346 El Monte Road, El Cajon, CA 92020-3022 NBS DEFAULT SERVICES…

Court:COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

Date published: Apr 30, 2018

Citations

No. D072134 (Cal. Ct. App. Apr. 30, 2018)