Opinion
D071609
11-20-2017
WELLS FARGO BANK, N.A., Plaintiff and Respondent, v. GREGORIA G. CASTILLO et al., Defendants and Appellants.
Stephen F. Lopez for Defendants and Appellants. Crafts Law Firm, Angelo A. DuPlantier and Warren Fujimoto for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2013-00052289-CU-OR-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Timothy B. Taylor, Judge. Affirmed. Stephen F. Lopez for Defendants and Appellants. Crafts Law Firm, Angelo A. DuPlantier and Warren Fujimoto for Plaintiff and Respondent.
In 2006, defendant Gregoria G. Castillo (Gregoria), as trustee of her separate property trust, owned certain real property (the property) that was then encumbered by an existing first mortgage. Gregoria applied to Washington Mutual Bank, F.A. (WAMU), the predecessor in interest to respondent Wells Fargo Bank, N.A. (Wells Fargo), for two loans (a $247,000 refinance loan and a $261,500 home equity line of credit), part of which was to be used to pay off the existing first mortgage. The new WAMU loans were to be secured by the first and second trust deeds, respectively, encumbering the property.
Gregoria apparently told the Alliance Title (Alliance) escrow agent handling the WAMU refinance transaction of her desire to give her son, defendant Edmund Castillo (Edmund), an interest in the property. As an "accommodation," the escrow company recorded the quitclaim deed conveying the property to Gregoria and Edmund as joint tenants.
When the deeds of trust securing WAMU's loans and the quitclaim deeds were recorded, the quitclaim was mistakenly recorded before (rather than after) the deeds of trust. After Gregoria defaulted on her loan payments, Wells Fargo discovered the mistake as it was preparing to foreclose. Wells Fargo then filed the underlying action seeking a quiet title and declaratory relief judgment adjudicating that the WAMU deed of trust encumbered the entire property. Gregoria opposed Wells Fargo's action, asserting that the WAMU deed of trust encumbered only Gregoria's fractional half interest that remained after her quitclaim deed was recorded.
Following a bench trial, the court upheld Wells Fargo's quiet title claim, finding that WAMU and Gregoria intended that the WAMU deed of trust would be recorded before the quitclaim deeds and that it would encumber 100 percent of the property. Accordingly, the court quieted title for Wells Fargo. The Castillos appeal from the judgment.
The trial court found, and Gregoria does not dispute, that Wells Fargo is successor in interest to WAMU's interest in the loan and is the proper party to enforce the rights of the secured creditor under the deed of trust.
FACTUAL AND PROCEDURAL BACKGROUND
We review the evidence in the light most favorable to the judgment. (Woock v. Schlink (1947) 81 Cal.App.2d 12, 15 [on appeal from judgment quieting title appellate court views evidence in light most favorable to the judgment].)
In 2006, Gregoria applied to WAMU for a loan to refinance the property, and a home equity line of credit (HELOC) as a part of the same transaction. At that time the property was security for a loan issued by Greenpoint Mortgage, on which a balance of approximately $242,000 remained unpaid. The appraisal prepared in connection with the loan applications valued the property at approximately $500,000. Edmund was neither an applicant to nor borrower from WAMU under the loan application.
WAMU ultimately agreed to provide Gregoria with a $247,000 refinance loan, the proceeds of which funded the payoff of the Greenpoint Mortgage loan, and a $261,500 HELOC. WAMU sent its closing instructions to the LSI-Fidelity National Title (LSI) company with directions the loan could close and the proceeds disbursed only if (1) Gregoria held title "consistent with the grantor recital on the Security Instrument," (2) the $247,000 loan was secured by a first lien on the property, and (3) the HELOC was secured by a second lien on the property. The "grantor recital on the security instrument" stated that Gregoria held title to the property as trustee of her separate property trust. The loan closed and the Greenpoint Mortgage loan was paid off from the proceeds of the WAMU loan. Thus, under WAMU's instructions for this transaction, the closing was subject to the conditions that title to the property was to be held in Gregoria's name as trustee for her trust and WAMU's loans were to be secured by a first deed of trust for the $247,000 loan and a second deed of trust for the HELOC.
Before the transaction closed, however, Gregoria asked Alliance to record quitclaim deeds enabling her to quitclaim the trust's interest to herself individually and Edmund as joint tenants. The Alliance escrow officer charged with closing this transaction, Karla Severance, testified that WAMU's instructions made no reference to the quitclaim deeds, but instead required the loan be closed only if title was held by Gregoria as trustee. However, the package of materials sent by Severance to the title company (LSI) for recording, which included the first and second trust deeds signed by Gregoria (in her capacity as trustee for her trust and individually), also contained the quitclaim deeds with the notation that they were to be "record[ed] as an accommodation." Severance testified that notation signified that this was a request to the title company to record the documents "as a favor . . . after the insured transaction [the new loans and deeds of trust] close[d]." WAMU was not even informed the quitclaim deeds were going to be recorded as an accommodation.
LSI's title officer, Laurel Hess, who handled the WAMU transaction, confirmed the "accommodation" notation on the February 6, 2006 transmittal letter from Alliance to LSI (viewed in light of WAMU's instructions) meant the quitclaim deeds were to be recorded after the deeds of trust and that WAMU's instructions indicated title had to be held in the name of the borrower (Gregoria) in order to close the loan transactions.
However, when the documents were actually recorded, the quitclaim deeds were recorded before (rather than after) the deeds of trust. The impact of this order of recording, if that had been the parties' true intent, would effectively have provided WAMU with a security interest in (at most) Gregoria's remaining fractional half interest in the property. An expert (along with other witnesses) testified they had never seen a lender make a residential loan secured only by a fractional interest in the land serving as security. Although Gregoria testified she and WAMU agreed she could first divest herself of sole ownership of the property and then pledge her remaining interest in the property as security for the refinance loan and the HELOC on which she was the sole debtor, the court expressly found that her testimony lacked credibility.
Arguably, the order of recording could have deprived WAMU of any record security interest in the property. The quitclaim deed transferred the property from "Gregoria G. Castillo, Trustee of [the trust]" to Edmund and "Gregoria G. Castillo, a widow," thus divesting the trust of record title to the property. However, because the trustor on the deed of trust was "Gregoria G. Castillo, Trustee of [the trust]" and not "Gregoria G. Castillo, a widow," the deed of trust arguably was a "wild deed" because the trustor would have lacked record title at the time the deed of trust recorded. (See generally 3 Miller & Starr, Cal. Real Estate (4th ed. 2017) § 8:58, pp. 8:169-8:171.)
When Gregoria defaulted on the loans in 2011, Wells Fargo learned of the order in which the documents had been recorded. It then filed the present action seeking a declaration on the priority of the deed of trust and the quitclaim deeds, and for a judgment quieting Wells Fargo's title as against any claim of priority by Edmund.
The court found it was the parties' mutual intent that WAMU's deed of trust would encumber the entire property and record prior to the recordation of the quitclaim deeds. It concluded that any interest obtained by Edmund as a result of the quitclaim deeds was to be junior to the deed of trust, and the defendants' contrary evidence (Gregoria's purportedly expressed intent that WAMU's loans would be secured only by her fractional interest in the property) was not credible. Accordingly, the court entered judgment quieting title in Wells Fargo, and declaring that the deed of trust encumbered 100 percent of the property and that the interest obtained by Edmund from the quitclaim deeds was junior to and subject to the WAMU deed of trust.
DISCUSSION
Defendants assert the judgment must be reversed because a court's equitable powers, under either principles governing the creation of equitable liens or under principles of equitable subrogation, cannot be invoked to permit Wells Fargo to "receive[] . . . a better lien than what was bargained for [by] giving [Wells Fargo] a security interest against Edmund Castillo's interest" because "there is no evidence this was ever intended." They assert the court abused its discretion when it applied its equitable powers to enforce the agreement according to the terms understood by WAMU—declaring the deed of trust had priority over the quitclaim—because (1) it remade the contract in a manner contrary to Gregoria's intent or understanding of the loan transaction, (2) Wells Fargo failed to take prompt action to correct the error, and (3) Edmund's interest was subjected to Wells Fargo's lien even though he engaged in no wrongful conduct. This abuse of discretion, argue defendants, requires reversal of the judgment.
Equitable lien principles permit a court to create a lien on property of a defendant to secure payment of a debt owed to a plaintiff, and may be employed when a contract reveals an intent to charge particular property with that debt or " ' "out of general considerations of right and justice as applied to the relations of the parties and the circumstances of their dealings." ' " (County of Los Angeles v. Construction Laborers Trust Funds for Southern California Admin. Co. (2006) 137 Cal.App.4th 410, 414; Grappo v. Coventry Financial Corp. (1991) 235 Cal.App.3d 496, 509 [equitable lien is appropriate where parties erroneously created defective mortgage, or where there is lack of formal mortgage or deed of trust but parties intended to create security interest, or where the parties attempted or intended to make property security for the obligation].) Equitable subrogation principles, which are more precisely conceptualized as determining lien priority rather than lien creation, allow a lender who has paid off a borrower's debt to a former creditor to succeed to the rights and remedies of that former creditor, including any lien priority that former creditor would have possessed if his debt had not been paid. (Bank of New York Mellon v. Citibank, N.A. (2017) 8 Cal.App.5th 935, 948.)
As a preliminary matter we reject defendants' characterization of the judgment. The court merely ordered declaratory relief in a quiet title action, which did nothing more than declare the priority between and among the recorded documents. (Cf. Connolly v. Trabue (2012) 204 Cal.App.4th 1154, 1167 [quiet title action under Code Civ. Proc., § 764.010 et seq. "is now considered to be one in law, not equity"].) The court's quiet title judgment here determined that the interest obtained by Edmund from the quitclaim deeds was junior to and subject to the WAMU deed of trust, and accordingly declared that the deed of trust encumbered 100 percent of the property held by Gregoria prior to any conveyance accomplished by the quitclaim deeds. The judgment expressly stated that "in light of its findings on the quiet title count and the declaratory relief count, it need not reach" Wells Fargo's alternative claim for imposition of an equitable lien.
Our review of a court's decision in a quiet title action is limited to determining whether substantial evidence supports the judgment. (Woock v. Schlink, supra, 81 Cal.App.2d at p. 15; accord, Afghan National Assn. v. Akbar (1957) 154 Cal.App.2d 97, 100 [judgment quieting title reviewed for substantial evidence].) The testimony of the witnesses presented (and the documentary evidence submitted) by Wells Fargo provide sufficient evidence from which a trier of fact could conclude both parties understood and intended the transaction was to loan funds to Gregoria on condition that the resulting indebtedness would be secured by the entire property owned by Gregoria at the time she applied for those loans, and that WAMU was unaware of (or indifferent to) any subsequent conveyances Gregoria might make by quitclaim deeds which would be junior to WAMU's trust deeds. With this factual foundation, there is ample basis for the court to conclude the recordation of the quitclaim deeds "as an accommodation" to Gregoria was not part of the loan transaction, and that any mistake in the order which the instruments were recorded was appropriately rectifiable by a quiet title judgment that restored the loan transaction to the priority agreed to and intended by the parties. Gregoria makes no effort to suggest that, once the court determined it would credit Wells Fargo's evidence and reject her contrary evidence, the judgement could be reversed for lack of substantial evidentiary support. We conclude the court's quiet title judgment is supported by substantial evidence. (Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632 [where evidence of intent disputed at trial, trial courts determination of parties' intent is reviewed for substantial evidence].)
Moreover, even if we were to accept defendants' attempt to recharacterize the court's judgment as a determination rooted in the application of equitable subrogation principles, their argument still is inadequate to show an abuse of discretion. Defendants' core argument asserting an abuse of discretion is that WAMU made a unilateral mistake because, while WAMU may have wanted its deed of trust to encumber the entire property, Gregoria told WAMU's agents she would accept the loan only on the condition the deed of trust would solely encumber her post-quitclaim fractional remainder interest in the property. From that predicate, defendants assert that (1) reformation for unilateral mistake is unavailable because Gregoria had no knowledge of WAMU's misunderstanding at the time she closed the loan agreement (City of Cypress v. New Amsterdam Cas. Co. (1968) 259 Cal.App.2d 219, 225), and (2) equitable subrogation may only be invoked against Edmund if he committed some wrongful conduct which makes his equity inferior to WAMU, (see Golden Eagle Ins. Co. v. First Nationwide Financial Corp. (1994) 26 Cal.App.4th 160, 171 [discussing the so-called " 'doctrine of superior equities' "]), and there was no evidence of any wrongful conduct by Edmund.
We reject defendants' argument for several reasons. First, the predicate upon which it is based—Gregoria's testimony she understood (and expressed to WAMU) the loan was conditional on having the deed of trust encumbering only her post-quitclaim fractional remainder interest—was found lacking in credibility by the trial court, and it had ample grounds for making that finding. Second, Edmund's claim that he should be protected by the "superior equities" doctrine is based on the peremptory assertion that there was no evidence he engaged in wrongful conduct and therefore his equities must be deemed superior. However, Edmund apparently acquired his interest by gift, which undermines his claim that he occupies a superior equitable right as against a party who parted with valuable consideration. (See Pellerito v. Dragna (1940) 41 Cal.App.2d 85, 89-90.) The evidence also supports an inference that he had notice the WAMU loan was being used to pay off a preexisting lien (the Greenpoint Mortgage loan), which occupied a position superior to the interest he acquired by the quitclaim deed, which further militates against his claim of superior equities. (See, e.g., JP Morgan Chase Bank, N.A. v. Banc of America Practice Solutions, Inc. (2012) 209 Cal.App.4th 855, 861-862.) Indeed, it would be patently unreasonable for Edmund to believe that a lender would loan Gregoria more than $500,000 secured only by her half interest that was worth only $250,000. Thus, even if we were to measure the court's judgment employing equitable principles, Edmund has not demonstrated the judgment conferring priority of the deed of trust over Edmund's interest was an abuse of discretion.
DISPOSITION
The judgment is affirmed. Respondent is entitled to costs on appeal.
DATO, J. WE CONCUR: HUFFMAN, Acting P. J. IRION, J.