Court decisions in other states, as well as California bankruptcy courts, have implied that there are strict rules regarding assigning and recording assignments of Deeds of Trust and Promissory Notes. The Salazar bankruptcy court decision implied that the note had to be assigned, and in possession of the foreclosing lender. However, California state courts are independent, and are charting their own approach to these issues. Parties who are considering conducting a California foreclosure, or are the owner facing a foreclosure, should consult with an experienced Sacramento and El Dorado real estate attorney to clarify the requirements.
In Debrunner v. Deutsche Bank National Trust Company the plaintiff, attempting to stop a trustee’s sale, made arguments based on the recorded, and unrecorded, documents relied on by the lender. California law regarding trustee’s sales is detailed and specific, and plaintiffs often look for specific technical defects in the process.
The Note was not Assigned with the Deed of Trust
Debrunner first argued that assignment of a deed of trust must be accompanied by assignment of the promissory note. In this case there was no evidence of assignment of the note along with the deed of trust; the plaintiff demanded that the bank present the note, but the bank did not have it. The plaintiff argues, therefore, that since the note and deed of trust were ‘divorced’ in this situation, the lender had no right to foreclose. The Court disagreed. First, it noted that the assignment document assigned both the deed of trust “together with the note or notes therein described…” Next, it noted that the comprehensive statutory scheme for foreclosure in California is intended to be comprehensive, and there it is not stated that the lender possess a beneficial interest in the note to foreclosure. Civil Code sections 2924 through 2924k do not require the note to be in possession of the party initiating a foreclosure.
The Notice of default did not name the beneficiary.
Plaintiff made two arguments about the notice of default. The first was that it did not identify the beneficiary. It noted Deutsche Bank as beneficiary, but did not include contact info. However, the Notice did specify the servicer as the Bank’s attorney in fact, and included the servicers’ contact info. Thus, there was no prejudice to the plaintiff in this claimed defect.
Notice of Default recorded before substitution of trustee was recorded
Secondly, plaintiff argued that the Notice named Old Republic as Trustee, but there was no recorded substitution of Old Republic at that time. However, section 2924a provides for the situation in which the substitution is executed but not yet recorded until after the notice of default. And, again, there was no evidence that this prejudiced the plaintiff in stopping the foreclosure.
A looming issue in these cases is prejudice- did the claimed problems actually prevent the plaintiff from saving the property in some way? In reality these problems arise because the plaintiff is behind on payments; and the procedure to bring the loan current is not a secret. This plaintiff does not claim he was unable to bring the loan current because the substitution of trustee was not recorded, or that there was no assignment of the note. He probably just did not have the cash, and California state courts have not been friendly to plaintiffs in these situations.