Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County, No. GIC828794 Judith F. Hayes, Judge.
HALLER, Acting P. J.
Scott Jacoby purchased property previously owned by J. Ross White-Sorensen at a court-ordered judicial foreclosure sale. White-Sorensen and several entities with interests in two extinguished deeds of trusts brought an action against Jacoby, seeking to invalidate the sale and/or obtain declaratory relief providing that Jacoby holds the property subject to these deeds of trust. Jacoby cross-complained seeking to quiet title to the property and for a judgment that he is the owner of unencumbered title to the property.
The court granted Jacoby's summary judgment motion on the claims against him and on his affirmative quiet title claim. White-Sorensen and two entities named on the extinguished deeds of trust appeal from the judgment. We affirm.
These two entities are nominee/beneficiary Mortgage Electronic Registration Systems (MERS) and trustee First American Title Company (First American). The original creditor/beneficiary on the deeds of trust, Accredited Home Lenders, Inc., also appealed from the judgment, but later filed for Chapter 11 bankruptcy. We have since granted Accredited's motion to be dismissed from the appeal. For ease of reference, we collectively refer to Accredited, First American, and MERS as the Accredited parties. We collectively refer to White-Sorensen, First American, and MERS as appellants.
FACTUAL AND PROCEDURAL SUMMARY
Overview
This appeal arises from an action filed by Linda Nacif against White-Sorensen resulting in a default judgment against White-Sorensen. In the default judgment, the court found Nacif proved her claims and ordered a judicial foreclosure sale of White-Sorensen's property. The final judgment stated the proceeds of the sale shall be paid to Nacif for the judgment amount ($209,187 plus interest), and any surplus shall be paid to junior secured lenders who recorded interests after Nacif recorded her lis pendens. Accredited was a lienholder who had recorded two deeds of trust securing loans to White-Sorensen after Nacif filed her lis pendens.
At the court-ordered judicial foreclosure sale conducted by the San Diego County Sheriff's Office (Sheriff), Jacoby was the highest bidder at $222,524. Pursuant to the court's judgment, the Sheriff paid this amount to Nacif and there was no remaining surplus. The Sheriff transferred title of the property to Jacoby, and Accredited's later-recorded deeds of trust were extinguished, leaving Accredited with unsecured notes against White-Sorensen. (Code Civ. Proc., § 701.630.)
All further statutory references are to the Code of Civil Procedure.
As explained in more detail below, White-Sorensen and the Accredited parties then filed claims against Jacoby seeking to set aside the sale or seeking an order that Jacoby purchased the property subject to Accredited's deeds of trust. Jacoby filed a cross-complaint seeking to quiet title to his property.
Jacoby moved for summary judgment, arguing his purchase at the court-ordered sale was conclusive and could not be challenged. In opposing the motion, the Accredited parties argued the facts showed that before he bid on the property Jacoby had notice of their deeds of trust and that they were in the process of challenging the default judgment in the Nacif action. The trial court found that even assuming Jacoby was aware of these facts, Jacoby was entitled to quiet title to the property because the statutes provide a judicial foreclosure sale to a party other than the judgment creditor is "absolute" and "may not be set aside for any reason." (§ 701.680, subd. (a).) The court further found Jacoby did not purchase the property subject to Accredited's deeds of trust because these instruments were not recorded when Nacif commenced her action and recorded the lis pendens. The court thus granted Jacoby summary judgment. As explained below, we agree with the court's conclusions and affirm the judgment.
We note that we are concurrently filing an opinion in a companion case involving appellants' disputes with Nacif. (Nacif v. White-Sorensen (August 8, 2011, D056993 (Nacif II).) We also previously filed an opinion involving Accredited's claims against Nacif. (Accredited Home Lenders, Inc. v. Nacif (July 26, 2007, D048938) (Nacif I).) For clarity, we have made an effort to include facts in this opinion only to the extent they are relevant to the issues and/or appellate contentions asserted in this (the Jacoby) case. A more detailed background of the underlying factual circumstances can be found in the Nacif I and Nacif II opinions.
Summary of Events Leading to Judicial Foreclosure Sale
In April 2004, Nacif filed an action against White-Sorensen, claiming White-Sorensen breached a contract to repay a loan and sought to impose an equitable mortgage on his property (the White-Sorensen property). On the same day, Nacif recorded a lis pendens on the White-Sorensen property, giving notice of her equitable mortgage claim affecting the property.
Five months later, in September 2004, Accredited recorded two deeds of trust on the White-Sorensen property securing Accredited's $675,000 loan to White-Sorensen. The deeds of trust identified First American as the trustee and MERS as the nominee and nominal beneficiary. White-Sorensen obtained this refinancing loan to fund a settlement with Nacif. Although Nacif and White-Sorensen signed a settlement agreement in August 2004, Nacif later amended her complaint and continued her action against White-Sorensen based on allegations that he engaged in fraud in inducing her to agree to the settlement. White-Sorensen then defaulted on the amended complaint.
In June 2005, the court entered a $209,187 default judgment against White-Sorensen on Nacif's amended complaint. The court also imposed an equitable mortgage on the White-Sorensen property and ordered the property sold at a foreclosure sale. The amended final judgment, dated July 8, 2005, stated that all interests in the White-Sorensen property recorded "subsequent to the filing of notice of the pendency of this action" would be extinguished after the sale of the property. (Italics added.) Specifically, the judgment stated: "[A]fter delivery of a deed by the levying officer to the purchaser at the sale, [White-Sorensen] and... all persons claiming to have acquired any estate or interest in the property subsequent to the filing of notice of the pendency of this action with the county recorder, are forever barred and foreclosed from all equity of redemption in, and claim to, the property and every part of it." (Italics added.)
Two weeks later, on July 22, 2005, the trustee on Accredited's deeds of trust recorded a notice of trustee's sale on the White-Sorensen property, based on claims that White-Sorensen had failed to make required payments on the $675,000 refinance loan.
On August 5, 2005, Nacif recorded an abstract of the July 8, 2005 final judgment, giving notice that the court had determined her judgment lien was superior to all interests in the property recorded after April 2004.
On August 12, 2005, the superior court issued a writ of execution on the July 8, 2005 final judgment.
On September 2, 2005, the Sheriff received instructions to levy upon the White-Sorensen property with a copy of the writ of sale. One week later, on September 9, the Sheriff recorded a Notice of Levy and a copy of the writ of sale.
At some point between August 2005 and October 2005, Accredited learned of Nacif's abstract of judgment which indicated that all liens (including Accredited's deeds of trust) would be extinguished by the court-ordered judicial foreclosure sale. Based on this information, Accredited retained White-Sorensen's former counsel (S. Todd Neal) to "immediately file a Complaint for Declaratory Relief against Nacif on behalf of Accredited and MERS to protect the priority of the deeds of trust."
In November 2005, Accredited filed a separate lawsuit against Nacif seeking a declaration that its deeds of trust had priority over Nacif's July 8, 2005 final judgment. In January 2006, Accredited filed a motion in Nacif's case against White-Sorensen, seeking to vacate the entry of default and default judgment against White-Sorensen and for leave to intervene in this action. Superior Court Judge Linda Quinn presided over the Nacif/White-Sorensen action.
While Accredited's motions were pending in the Nacif/White-Sorensen action, on February 23, 2006, the Sheriff held a judicial foreclosure sale. Jacoby, a third party, offered the highest bid at $222,524. Based on Jacoby's bid, the Sheriff determined Jacoby was the purchaser of the property. One of Accredited's attorneys (Neal) did not receive prior notice of the precise date of the sale.
Two weeks after the sale, on March 10, 2006, Judge Quinn issued a tentative ruling granting Accredited's motion to set aside the White-Sorensen entry of default and default judgment, and granting Accredited's motion for leave to file a complaint in intervention.
On March 15, 2006, the Sheriff recorded a "Sheriff's Deed Under Execution" reflecting the conveyance of the White-Sorensen property to Jacoby.
On March 22, 2006, Judge Quinn confirmed the tentative ruling and entered an order vacating the default and the default judgment against White-Sorensen to permit Accredited to litigate its claims against Nacif. Nacif appealed. In her appeal, Nacif conceded Accredited's rights to litigate its disputes with her in the Nacif/White-Sorensen action, but argued that Judge Quinn erred in vacating the entry of default and default judgment with respect to White-Sorensen. (Nacif I, supra, D048938.)
Claims Between Appellants and Jacoby
While Nacif's appeal was pending, in May 2006, Accredited, White-Sorensen and MERS filed a complaint in intervention against Jacoby, seeking declaratory relief that the "Sheriff [never had], and did not pass, good title" of the White-Sorensen property to Jacoby; Jacoby was "not a good faith purchaser for value"; and Jacoby did not acquire any valid interest in the property. These parties alternatively sought a declaration that Jacoby's ownership of the property was subject to Accredited's deeds of trust. The next month, Jacoby filed a cross-complaint seeking to quiet title against the Accredited parties and White-Sorensen, and seeking to confirm the validity of the Sheriff's sale.
While these pleadings were pending, in July 2007, this court filed its decision reversing in part and affirming in part the court's order vacating the entry of default and default judgment. (Nacif I, supra, D048938 .)We held the court properly vacated the judgment because the judgment affected Accredited's rights, and the court would be required to determine the appropriate remedies (if any) as between Accredited and Nacif. (Ibid.) However, we reversed the portion of the judgment vacating the entry of default as to White-Sorensen, explaining that an entry of default has independent significance and is not void merely because the default judgment is later vacated. (Ibid.)
Summary Judgment Proceedings
In March 2008, Jacoby moved for summary judgment on the intervention complaint and on his cross-complaint against White-Sorensen and the Accredited parties. In support, he presented the evidence summarized above pertaining to the official actions leading to his purchase of the White-Sorensen property at the Sheriff's sale. Jacoby argued that because he was a third party purchaser at a court-ordered judicial foreclosure sale pursuant to a court judgment, the sale was final and was not subject to challenge "for any reason." (See § 701.680, subd. (a).)
In opposing the summary judgment, appellants did not dispute the chronology of events presented by Jacoby, but submitted additional facts in an attempt to create a basis for an exception to the general finality rules pertaining to judicial foreclosure sales.
First, appellants argued that the sale could be set aside because Jacoby was not a good faith purchaser based on facts showing: (1) an appraisal in 2004 (about 18 months before the sale) valued the White-Sorensen property at $690,000 and Jacoby purchased the property for $222,524; (2) before the sale Jacoby knew of Nacif's lis pendens and that Accredited had two deeds of trust on the property; and (3) before the sale Jacoby asked Nacif's attorney about the priority of Accredited's liens, and Nacif's attorney responded that the Accredited parties had filed a motion challenging the White-Sorensen default judgment.
Second, appellants presented the declaration of one of their attorneys (Neal), who stated that "Nacif proceeded with [the foreclosure] sale [without] provid[ing] any notice to me that a sale of the property was pending." (Italics added.)
Third, appellants presented the declarations of White-Sorensen and Neal Melton (Accredited's mortgage broker/agent), who each discussed the events leading to the court's July 8, 2005 amended default judgment against White-Sorensen, including Nacif's execution of the 2004 settlement agreement with White-Sorensen and her failure to repay the settlement funds before filing her amended complaint against White-Sorensen. Melton also asserted that "Accredited would not have refinanced the property without Ms. Nacif's written assurances that the lis pendens would be released upon payment of the $115,000."
Court's Ruling on Jacoby's Summary Judgment Motion
After considering the parties' memoranda and supporting submissions, the court granted summary judgment in favor of Jacoby. The court found the applicable statutes are "crystal clear" that when a third party purchases property at a judicial foreclosure sale, the sale "may not be set aside 'for any reason.' " The court also rejected appellants' arguments that Jacoby held the property subject to Accredited's deeds of trust, finding these arguments were not legally supported. The court thereafter entered a judgment that Jacoby is the "owner of unencumbered title" of the White-Sorensen property, and that the opposing parties had "no right, title, estate, lien or interest in the Property adverse to" Jacoby.
White-Sorensen and the Accredited parties filed an appeal. This court later stayed the appeal after Accredited advised the court it had filed for bankruptcy. About one year later, Accredited and appellants requested that Accredited be dismissed from the appeal and "MERS and First American be substituted as appellants in Accredited's place." We granted the request that Accredited be dismissed from the appeal, but denied the request that MERS and First American be substituted in Accredited's place. We found that the documents presented did not support a basis for a substitution in the case, but noted that MERS and First American were existing appellants in the appeal.
DISCUSSION
I. Standard of Review
Jacoby moved for summary judgment on his affirmative pleadings and on the claims asserted against him.
When a defendant moves for summary judgment, the defendant "bears the burden of persuasion that there is no triable issue of material fact and that [the party] is entitled to judgment as a matter of law." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar).) A defendant satisfies this burden by showing one or more elements of the cause of action cannot be established or that there is a complete defense to that cause of action. (Ibid.)
When a plaintiff or cross-complainant moves for summary judgment on its claims, the party bears the burden of proving each element of the cause of action entitling the party to judgment on that cause of action. "[I]f a plaintiff who would bear the burden of proof by a preponderance of evidence at trial moves for summary judgment, [the plaintiff] must present evidence that would require a reasonable trier of fact to find any underlying material fact more likely than not—otherwise, he would not be entitled to judgment as a matter of law, but would have to present his evidence to a trier of fact." (Aguilar, supra, 25 Cal.4th at p. 851.)
If the moving party fails to present sufficient, admissible evidence to meet its initial burden, the court must deny the summary judgment motion. This rule applies even if the opposing party does not object to the moving party's evidence, presents defective declarations, or fails to present a sufficient counter showing. (Rincon v. Burbank Unified School Dist. (1986) 178 Cal.App.3d 949, 954-956.) However, once a party meets its initial summary judgment burden, " 'the burden shifts to the [opposing party]... to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.' " (Aguilar, supra, 25 Cal.4th at p. 849.) The opposing party may not rely upon the mere allegations or denials of its pleading to show the existence of a triable issue of material fact. (Ibid.; see Chaknova v. Wilbur-Ellis Co. (1999) 69 Cal.App.4th 962, 974-975.)
We review a summary judgment de novo. (Buss v. Superior Court (1997) 16 Cal.4th 35, 60.) We assume the role of the trial court and redetermine the merits of the motion. In doing so, we view the factual record in the light most favorable to appellants, the parties opposing the summary judgment. (See Garcia v. W&W Community Development, Inc. (2010) 186 Cal.App.4th 1038, 1041.) We strictly scrutinize the moving party's papers so that all doubts as to the existence of any material triable issues of fact are resolved in favor of the party opposing summary judgment. (Barber v. Marina Sailing, Inc. (1995) 36 Cal.App.4th 558, 562.) "Because a summary judgment denies the adversary party a trial, [the motion] should be granted with caution." (Colores v. Board of Trustees (2003) 105 Cal.App.4th 1293, 1305.)
II. No Legal Basis to Set Aside Jacoby's Purchase of White-Sorensen Property
Under section 701.680, a judicial foreclosure sale to a party other than the beneficiary is "absolute" subject only to the debtor's right of redemption, and the sale "may not be set aside for any reason." (§ 701.680, subd. (a), italics added; see Arrow Sand & Gravel, Inc. v. Superior Court (1985) 38 Cal.3d 884, 890 (Arrow Sand) [a judicial foreclosure "sale 'is absolute and may not be set aside for any reason' "]; Amalgamated Bank v. Superior Court (2007) 149 Cal.App.4th 1003, 1018-1019 ["By purchasing the property at the sheriff's auction, [the third party] became fee owner, subject only to the [debtor's] right of redemption"]; First Federal Bank of California v. Fegen (2005) 131 Cal.App.4th 798, 800-801 ["the sale is 'absolute and may not be set aside for any reason' "]; Gonzalez v. Toews (2003) 111 Cal.App.4th 977, 981 ["section 701.680 is crystal clear—it states that [judicial foreclosure] sales are absolute and may not be set aside 'for any reason' unless the judgment creditor was the purchaser"]; see also 1 Bernhardt, Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2011) § 3.84, pp. 237-238 [a judicial foreclosure sale "has finality and may not be set aside for any reason"]; 1 Greenwald & Asimow, Cal. Practice Guide: Real Property Transactions (The Rutter Group 2010) ¶ 6:544.10, p. 6-112.11 ["judicial foreclosure sale to a party other than the beneficiary is 'absolute, ' subject only to the trustor's right of redemption"].)
The only exception to this rule is that a judgment debtor may challenge the sale if: (1) "the purchaser at the sale [was] the judgment creditor" and (2) "the sale was improper because of irregularities in the proceedings, because the property sold was not subject to execution, or for any other reason...." (§ 701.680, subds. (a), (c)(1); see First Federal Bank of California v. Fegen, supra, 131 Cal.App.4th at pp. 800-801.) This exception is inapplicable here because the purchaser at the sale was a third party (Jacoby) and not the judgment creditor (Nacif).
In seeking to avoid this rule, respondents rely on two cases that were decided long before section 701.680 was enacted. (See Riley v. Martinelli (1893) 97 Cal. 575; Hansen v. G & G Trucking Co. (1965) 236 Cal.App.2d 481.) In 1982, the Legislature enacted section 701.680 as part of a comprehensive revision to the enforcement of judgments law, seeking to protect the purchaser's title and ensure the finality of judicial foreclosure sales, and thus encourage fair bidding at judicial foreclosure sales. (See Arrow Sand, supra, 38 Cal.3d at pp. 890-891; Amalgamated Bank v. Superior Court, supra, 149 CalApp.4th at p. 1018; Gonzalez v. Toews, supra, 111 Cal.App.4th at p. 980.) Because the pre-1982 law did not contain provisions similar to section 701.680 barring all challenges to judicial foreclosure sales, Riley and Hansen, decided in 1893 and 1965, are unhelpful here.
Appellants alternatively contend the sale may be set aside because Jacoby was not a good faith purchaser based on facts showing that an appraisal in 2004 valued the property at $690,000 and Jacoby purchased the property for $222,524. However, under section 701.680, subdivision (a), a court cannot set aside a judicial foreclosure sale to a third party based on the equities of the situation, including a substantial disparity between the fair market value and the sums successfully bid. (See Amalgamated Bank v. Superior Court, supra, 149 Cal.App.4th at pp. 1008, 1009, 1018 [citing section 701.680, court declined to set aside a third party's $2,000 successful bid for 57 acres of property with an approximate value of $6 million].)
Appellants additionally contend that if Jacoby had conducted a reasonable investigation, he would have discovered that appellants had intervened in the action and had moved to set aside the equitable judgment. However, as recognized by the California Supreme Court, there is no exception to section 701.680, subdivision (a) based on facts showing the purchaser was aware of an existing challenge to the underlying judicial foreclosure judgment. (See Arrow Sand, supra, 38 Cal.3d at pp. 887-891.) In Arrow Sand, the issue was whether the fact that an appealing defendant has no statutory right to record a lis pendens pertaining to an appeal of a judicial foreclosure judgment violates the defendant's equal protection rights because the applicable statutes permit plaintiffs and cross-complainants to record a lis pendens. (Id. at p. 887.) Relying on section 701.680, subdivision (a), the high court found no denial of equal protection because a lis pendens giving notice of an appeal of a judicial foreclosure judgment has no practical effect. (Arrow Sand, supra, at pp. 890-891.) The court explained that section 701.680, subdivision (a) "completely eliminate[s] the possibility that judicial sales [can] be set aside on reversal of the underlying judgment...." (Id. at p. 890.) Thus, "unless a defendant titleholder seeks and receives a statutory stay of enforcement or supersedeas from a higher court, the judicial sale may proceed" (id. at p. 891), and thus "[a] recorded notice of lis pendens would not serve to vitiate the title of a purchaser at a judicial foreclosure sale" (id. at p. 887). Under this holding, the fact that a third party purchaser knew of an existing challenge to a judicial foreclosure judgment is not a valid basis to later set aside the court-ordered judicial foreclosure sale.
We also reject appellants' argument that they had a right to set aside the sale because the legislative history of section 701.680, subdivision (a) suggests the purpose of this code section was to limit a debtor's right of redemption and there is no showing the statute was intended to limit challenges to a third party purchase. In interpreting statutory language, the goal is to determine the legislative intent. (See Esberg v. Union Oil Co. (2002) 28 Cal.4th 262, 268.) To determine legislative intent, we must turn first to the words of the statute, giving them their usual and ordinary meaning. (Ibid.) When the language of a statute is clear, a court should enforce the statute according to these terms. (Ibid.) A court looks to legislative history only when the statute is ambiguous. (Ibid.; see Niles Freeman Equipment v. Joseph (2008) 161 Cal.App.4th 765, 780.)
Here, the statutory language is clear: section 701.680, subdivision (a) bars all challenges to a third party purchase at a judicial foreclosure sale. (See Amalgamated Bank v. Superior Court, supra, 149 Cal.App.4th at p. 1018.) Thus, even if the legislative history shows the Legislature was concerned primarily with the prior rule that provided debtors with expansive redemption rights and enacted the new legislation to limit these rights, this does not mean the Legislature did not also intend to bar other types of challenges to a purchase at a judicial foreclosure sale. In this regard, appellants' reliance on Yancey v. Fink (1991) 226 Cal.App.3d 1334 is misplaced. Although the Yancey court discussed section 701.680, subdivision (a) in the context of a debtor's statutory redemption rights, this does not mean the statute is limited to this subject matter.
III. Jacoby's Interests Are Not Subject to Accredited's Deeds of Trust
Appellants also contend the court erred in quieting title in favor of Jacoby because Jacoby's interest in the property is subject to Accredited's two deeds of trust under section 726, subdivision (c). This code section states in relevant part: "Notwithstanding Section 701.630, the sale of the encumbered real property... does not affect the interest of a person who... has a lien thereon, if the conveyance or lien appears of record in the proper office at the time of the commencement of the action and the person holding the recorded conveyance or lien is not made a party to the action." (Italics added.) Section 701.630 provides that: "If property is sold pursuant to [a judicial foreclosure sale], the lien under which it is sold [and] any liens subordinate thereto... on the property sold are extinguished."
Under these statutes, the general rule is that a judicial foreclosure sale extinguishes the lien under which the property is sold and all subordinate liens. (See Little v. Community Bank (1991) 234 Cal.App.3d 355, 360; Mitchell v. Alpha Hardware & Supply Co. (1935) 7 Cal.App.2d 52, 57.) However, an exception to this rule applies if the subordinate lienholder was not made a party to the judicial foreclosure action and this lien "appear[ed] of record... at the time of the commencement of the action." (§ 726, subd. (c), italics added.) If these requirements are satisfied, the purchaser holds the property subject to the subordinate liens.
In this case, the undisputed facts show Accredited's deeds of trust were not recorded in April 2004 when Nacif first commenced her action against White-Sorensen. Thus, the section 726, subdivision (c) exception does not apply. Appellants nonetheless urge us to hold that this statutory exception governs because Nacif filed the amended complaint after Accredited's deeds of trust were recorded. They posit that because the amended complaint did not "relate back" to the original complaint, the amended complaint—and not the original complaint—should be the operative pleading for purposes of determining when the action commenced under the section 726 subdivision (c) exception.
This argument is unsupported. First, there is no basis for superimposing a statute-of-limitations relation-back theory onto section 726, subdivision (c). Section 726, subdivision (c) reflects a legislative judgment that a party who records a lien on property after the filing of a lis pendens has the means to protect itself. A lis pendens imparts constructive notice of an underlying judicial foreclosure action (and of the named parties in the action) to all subsequent encumbrancers. (See § 405.24.) Thus, a subsequently-recording lienholder has the information necessary to protect his or her rights by intervening in the action and seeking a stay of the foreclosure sale and/or participating at the foreclosure sale. (See Arrow Sand, supra, 38 Cal.3d at p. 891.)
Under the statutory language and this underlying legislative policy, the commencement of the judicial foreclosure action, and not the filing of an amended complaint, is the critical trigger date for determining a lienholder's interests. If a junior lienholder records an interest after a lis pendens is recorded, these parties "need not be joined as defendants as long as the plaintiff records and serves a lis pendens immediately on filing the complaint. The lis pendens binds such persons as effectively as if they had been joined in the action." (1 Bernhardt, Cal. Mortgages, Deeds of Trust and Foreclosure Litigation, supra, § 3.34, p. 205.)
Moreover, even assuming the relation-back theory was relevant to the application of section 726, subdivision (c) in this case, the amended complaint did relate back to the original complaint, at least with respect to the judicial foreclosure claim. Under the relation-back doctrine, an amendment relates back to an original claim for purposes of the statute of limitations if the amendment: (1) rests on the same general set of facts; (2) involves the same injury; and (3) refers to the same instrumentality. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 408-409; Barrington v. A. H. Robins Co. (1985) 39 Cal.3d 146, 150-151.) In determining whether the relation-back doctrine applies, the critical inquiry is whether the defendant had adequate notice of the claim based on the original pleading. (See Garrison v. Board of Directors (1995) 36 Cal.App.4th 1670, 1678.)
In the original complaint, filed in April 2004, Nacif sued White-Sorensen for breach of contract and sought an order permitting her to foreclose on an equitable mortgage on the White-Sorensen property. The caption on this original complaint stated: "COMPLAINT TO FORECLOSE UNDER EQUITABLE MORTGAGE." The same day that she filed this complaint, Nacif recorded a lis pendens on the White-Sorensen property, giving notice of this foreclosure action.
In the amended complaint filed in November 2004, Nacif realleged her claims against White-Sorensen for breach of the loan agreement and again sought an equitable mortgage/judicial foreclosure of White-Sorensen's property. She also added new fraud allegations pertaining to the settlement. The only substantive difference between the original complaint and the first amended complaint with respect to the equitable mortgage/judicial foreclosure cause of action, is that Nacif alleged she had been given a partial payment ($115,000), and thus that she was seeking only the remaining portion of the secured debt.
On this record, Nacif's first amended complaint related back to the original complaint, at least with respect to the claim at issue here (the breach of contract claim seeking to impose an equitable mortgage and a judicial foreclosure sale). The only factual difference between the complaints on this claim was the $115,000 payment made by White-Sorensen towards his debt. Although this payment may have raised legal issues regarding Nacif's ability to enforce the contract (see Myerchin v. Family Benefits, Inc. (2008) 162 Cal.App.4th 1526), this new legal issue did not preclude a finding that the Accredited parties had notice of the equitable mortgage claim when they recorded their deeds of trust.
Appellants argue that under the unique facts of this case, we should interpret section 726, subdivision (c) to mean that Nacif's amended complaint was the "commencement" of the action because Nacif benefited from Accredited's funding of her initial settlement with White-Sorensen and there were facts showing she wrongly refused to dismiss the complaint and withdraw the lis pendens. However, under the statutory scheme, the issues regarding the propriety of Nacif's conduct vis-à-vis Accredited does not affect the rights of Jacoby, who was a third party purchaser. Moreover, the undisputed facts show that although Accredited may have disagreed with Nacif's actions, the Accredited parties had actual knowledge of Nacif's continuing lawsuit and judgment against White-Sorensen and of the fact that Nacif never withdrew the lis pendens. Accredited's counsel acknowledged in the proceedings below that based on this knowledge, the Accredited parties filed a declaratory relief action against Nacif and petitioned to intervene in Nacif's continuing action against White-Sorensen before the judicial foreclosure sale took place. Under these circumstances, the Accredited parties had the ability to protect themselves by filing for a stay of the judicial foreclosure sale and/or seeking some form of preliminary injunctive relief.
Finally, we find unavailing appellants' challenge to the trial court's statement at the conclusion of its summary judgment order that "the Accredited parties had ample notice of the pending judicial foreclosure sale, but took no action to protect its interests and did not seek a stay of the proceedings." Appellants assert that because in moving for summary judgment Jacoby did not specifically rely on the evidence that the Accredited parties had notice of the pending foreclosure sale, the court erred in relying upon this fact. However, because the undisputed evidence established that Accredited had notice of the "pending judicial foreclosure sale" and had challenged the pending sale through a declaratory relief action, the court's observation was appropriate.
Appellants argue that this notice finding contradicts statements in the Nacif I decision in which we observed that the trial court had a "sufficient factual basis" to conclude that Accredited did not unreasonably delay in filing its motion to vacate the default judgment and noted that the trial court could have credited evidence that Accredited denied receiving timely notice of the judgment or of the sale of the property. (Nacif I, supra, D048938.) These statements, however, were directed to Accredited's notice of the precise date of the sale. The fact that Accredited may not have had actual knowledge of the sale date is different from a conclusion that Accredited (and the parties asserting rights based on Accredited's deeds of trust) knew or should have known that a sale was pending and they needed to act if they wanted to prevent a sale. (Ibid.) Moreover, our statement in the Nacif I decision was based on the limited record before us. In the Nacif I opinion, we admonished that we were not intending to rule on any of the substantive issues pertaining to other matters in the case, including Nacif's lis pendens and the effect of the lis pendens on the rights of the other parties. (Ibid.) Under these circumstances, we find unpersuasive appellants' attempt to use a statement from the Nacif I opinion to suggest they had no notice of the pending foreclosure sale, when the undisputed facts show they did know of a pending sale and/or they had constructive knowledge of the pending sale based on recorded documents and their involvement in the lawsuit.
DISPOSITION
Judgment affirmed. Appellants to bear respondent's costs on appeal.
WE CONCUR: McINTYRE, J., AARON, J.