Indian Village Estates, LLC v. Community Assessment Recovery ( 2020 )

FILED
NOT FOR PUBLICATION
SEP 22 2020
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: GOLD STRIKE HEIGHTS No. 19-16152
ASSOCIATION,
DC No. 2:18 cv-0973-JAM
Debtor,
______________________________
MEMORANDUM*
INDIAN VILLAGE ESTATES, LLC,
Plaintiff-Appellant,
v.
COMMUNITY ASSESSMENT
RECOVERY SERVICES; GARY
FARRAR, Chapter 7 Trustee,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of California
John A. Mendez, District Judge, Presiding
Argued and Submitted August 12, 2020
San Francisco, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: TASHIMA and CHRISTEN, Circuit Judges, and BATAILLON,**
District Judge.
Indian Village Estates (IVE) appeals from the judgment entered in favor of
Community Assessment Recovery Services (CARS) and Gary Farrar, the Chapter
7 trustee for the bankruptcy estate of Gold Strike Heights Homeowners
Association (Trustee). IVE’s state court action against CARS and the
homeowners’ association was removed to bankruptcy court after the homeowners’
association filed for Chapter 7 bankruptcy. The district court affirmed the
bankruptcy court’s judgment in favor of appellees on all of IVE’s claims. We have
jurisdiction under 28 U.S.C. §§ 158(d) and 1291. We affirm.
BACKGROUND
This case presents an unusual situation in which a party alleging wrongful
foreclosure is affiliated with the entity that allegedly had no authority to foreclose.
IVE, the party alleging wrongful foreclosure, is an entity controlled by Mark
Weiner. In 2004 and 2005, IVE purchased thirty-one of the forty-nine lots in the
Gold Strike Heights Subdivision from the developer, Westwind Development Inc.
As a condition of his purchase, Weiner required Westwind to appoint him and Don
Lee to the board of the homeowners’ association governing the subdivision, the
**
The Honorable Joseph F. Bataillon, United States District Judge for
the District of Nebraska, sitting by designation.
2
Gold Strike Heights Association (Gold Strike 1). However, after learning that
Gold Strike 1 was a suspended corporation for failure to file a Statement of
Information with the Secretary of State and failure to pay taxes to the Franchise
Tax Board, Weiner and Lee formed a new homeowners’ association in 2007. They
added one word to Gold Strike 1’s name and called the new homeowners’
association the Gold Strike Heights Homeowners Association (Gold Strike 2).
Weiner amended Gold Strike 1’s Declaration of Restrictions (CC&R’s) to make
Gold Strike 2 the “full successor in interest” to Gold Strike 1 and to transfer “full
control” of the subdivision to Gold Strike 2. Weiner knew that, because Gold
Strike 1’s and Gold Strike 2’s names were so similar, the names were often
confused and were used interchangeably on board meeting minutes and agendas,
including agendas prepared by Lee.
In 2010, Weiner and Lee were ousted from the board of Gold Strike 2,
leading to litigation between Gold Strike 2 and IVE, Weiner, and Lee. Pursuant to
a 2011 settlement agreement, IVE agreed to allow only local residents to serve as
board members in exchange for paying reduced association dues and assessments
to Gold Strike 2.1 In 2012, IVE unilaterally decided to stop paying association
1
Weiner “was a developer who lived outside the area.”
3
dues and assessments, purportedly due to Gold Strike 2’s financial
mismanagement.
Mike Cooper, the president of Gold Strike 2’s board of directors, contacted
CARS to collect the delinquent dues and assessments from IVE on Gold Strike 2’s
behalf. In July 2012, Gold Strike 2 entered into a contract with CARS for the latter
to collect the delinquent dues and assessments and to act as trustee for nonjudicial
foreclosure proceedings on the property owned by IVE.
Pursuant to California statutes governing nonjudicial foreclosures,2 CARS
sent IVE notices of intent to file a notice of delinquent assessment on IVE’s
property, and in March 2013, CARS filed and served thirty-one notices of
delinquent assessment regarding IVE’s property. The notices stated that CARS
represented “Gold Strike Heights Association,” and that notice was given pursuant
to the CC&R’s of “Gold Strike Heights Association.”
Weiner wrote a letter to CARS on IVE’s behalf, stating that the Gold Strike
Heights Association (Gold Strike 1) no longer governed the Gold Strike Heights
2
“California’s nonjudicial foreclosure scheme is set forth in Civil Code
§§ 2924–2924k, which ‘provide a comprehensive framework for the regulation of
a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of
trust.’” Gomes v. Countrywide Home Loans, Inc., 121 Cal. Rptr. 3d 819, 823 (Ct.
App. 2011) (quoting Moeller v. Lien, 30 Cal. Rptr. 2d 777, 782 (Ct. App. 1994)).
4
subdivision and that the Gold Strike Heights Homeowners Association (Gold
Strike 2) had taken over management of the subdivision. He challenged CARS’
authority to collect money on behalf of Gold Strike 1 that was “allegedly owed to
another corporate entity,” Gold Strike 2. Although not acknowledged in this letter,
Weiner knew that it was not Gold Strike 1 that initiated the foreclosure because he
remained on the board of Gold Strike 1. Weiner also knew that IVE owed the
delinquent dues and assessments to Gold Strike 2, and he never challenged the
computation of the amounts past due. Nor did Weiner challenge any aspect of the
foreclosure process other than the name of the homeowners’ association.
The CARS representative forwarded Weiner’s letter to Cooper, who said
that the association’s attorney advised him that the Gold Strike Heights
Association and Gold Strike Heights Homeowners Association “were the same
entity.” CARS relied on this assurance to continue with the foreclosure process.
In October 2013, CARS filed foreclosure notices and served copies on IVE.
The notices of default indicated that the lien was executed by Gold Strike 1. The
notices of trustee’s sale similarly indicated that Gold Strike 1 was the claimant, and
the certificates of foreclosure sale indicated that Gold Strike 1 was the
association/judgment creditor, Weiner and Lee wrote four more letters to CARS,
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asking for the legal basis for CARS’ authority to collect money on behalf of Gold
Strike 1 that “allegedly” was owed to Gold Strike 2.
The foreclosure sale was conducted on September 30, 2014. Gold Strike 2
bought all thirty-one lots. In January 2015, CARS recorded the Trustee’s Deeds
Upon Sale, indicating that the property was conveyed to Gold Strike 2.
IVE’s state court action against CARS, Gold Strike 1, and Gold Strike 2 was
removed to bankruptcy court. The bankruptcy court conducted a trial and made
detailed factual and credibility findings, and conclusions of law. The bankruptcy
court found in favor of CARS and the Trustee and entered judgment in their favor.
The court entered judgment quieting title to the thirty-one lots in favor of Gold
Strike 2 and its successor bankruptcy estate. IVE appealed to the district court,
which affirmed the bankruptcy court in full after a thorough review of the factual
findings and legal determinations. IVE timely appealed.
DISCUSSION
“[W]e review a bankruptcy court’s decision independently and without
deference to the district court’s decision.” Kirkland v. Rund (In re EPD Inv. Co.),
821 F.3d 1146, 1149–50 (9th Cir. 2016). The bankruptcy court’s findings of fact
are reviewed for clear error and its conclusions of law are reviewed de novo. Id. at
1150.
6
IVE’s wrongful foreclosure claim was based solely on the fact that the
foreclosure notices listed Gold Strike 1, rather than Gold Strike 2, as the
beneficiary. The bankruptcy court aptly characterized the error as a “name
misidentification” rather than, as IVE contends, a matter of the wrong entity
foreclosing. The cases on which IVE relies present very different circumstances
from those presented here.3
Under California law, “‘[a] nonjudicial foreclosure sale is presumed to have
been conducted regularly and fairly; one attacking the sale must overcome this
common law presumption “by pleading and proving an improper procedure and the
resulting prejudice.”’ ‘Prejudice is not presumed from “mere irregularities” in the
process.’” Kalnoki v. First Am. Tr. Servicing Sols., LLC, 214 Cal. Rptr. 3d 292,
311 (Ct. App. 2017) (quoting, first, Knapp v. Doherty, 20 Cal. Rptr. 3d 1, 8 n.4 (Ct.
3
IVE relies on Yvanova v. New Century Mortgage Corporation, 365
P.3d 845 (Cal. 2016), for the proposition that “[a] foreclosure initiated by one with
no authority to do so is wrongful for purposes of [a wrongful foreclosure] action.”
Id. at 851. However, this begs the question of whether the foreclosing entity here
had authority to do so. Moreover, Yvanova emphasized that its holding was
narrow: “We hold only that a borrower who has suffered a nonjudicial foreclosure
does not lack standing to sue for wrongful foreclosure based on an allegedly void
assignment merely because he or she was in default on the loan and was not a party
to the challenged assignment.” Id. at 848. The court specifically stated that, “[i]n
deciding the limited question on review, we are concerned only with prejudice in
the sense of an injury sufficiently concrete and personal to provide standing, not
with prejudice as a possible element of the wrongful foreclosure tort.” Id. at 857.
Yvanova is not relevant here.
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App. 2004), then Herrera v. Fed. Nat’l Mortg. Ass’n, 141 Cal.Rptr.3d 326, 336
(Ct. App. 2012)).
IVE contends it has established prejudice by the fact that its properties were
foreclosed upon, citing Kalnoki and Sciarratta v. U.S. Bank N.A., 202 Cal. Rptr. 3d
219 (Ct. App. 2016), but those cases do not support IVE. Sciarratta held that an
allegedly wrongful foreclosure was a sufficient allegation of prejudice to survive
demurrer where it was also alleged that the foreclosing entity’s beneficiary interest
in the deed of trust was void.4 Id.at 229–30.
Under Sciarratta, IVE’s contention that it suffered a wrongful foreclosure
may be a sufficient allegation to survive a demurrer (equivalent to a Rule 12(b)(6)
motion to dismiss). However, IVE not only must plead, but must prove, that it was
prejudiced. Kalnoki, 214 Cal. Rptr. 3d at 311. Merely being foreclosed upon is
not sufficient, especially given the circumstances presented here.
Sciarratta explained that “‘[m]ere technical violations of the foreclosure process
will not give rise to a tort claim; the foreclosure must have been entirely
4
The complaint in Sciarratta alleged the assignment of the interest in
the deed of trust was void, not merely voidable, because when the lender purported
to assign the promissory note to Bank of America, the lender “had nothing to
assign, having previously . . . assigned the promissory notes and deed of trust” to a
different bank. Sciarratta, 202 Cal. Rptr. 3d at 228. The complaint therefore
alleged that Bank of America, the foreclosing entity, had no valid interest in the
deed of trust and thus no right to foreclose.
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unauthorized on the facts of the case.’” Sciarratta, 202 Cal. Rptr. 3d at 226
(quoting Miles v. Deutsche Bank Nat’l Tr. Co., 186 Cal. Rptr. 3d 625, 636 (Ct.
App. 2015)); see also Knapp, 20 Cal. Rptr. 3d at 16 (presumption that foreclosure
was conducted regularly and fairly must prevail when record lacks substantial
evidence of prejudicial procedural irregularity); Residential Capital v. Cal-Western
Reconveyance Corp., 134 Cal. Rptr. 2d 162, 173 (Ct. App. 2003) (there must be “a
substantial defect in the statutory procedure that is prejudicial to the interests of the
trustor and claimants”).
Nor does Kalnoki help IVE. There, the lender and beneficiary of the deed of
trust, Wells Fargo Home Mortgage, Inc., ceased to exist when it merged with
Wells Fargo Bank, N.A., which succeeded to the prior entity’s interests. Wells
Fargo executed a substitution of trustee, which the plaintiffs challenged on the
ground that “the omission of the word ‘Inc.’ after the words ‘Wells Fargo Home
Mortgage’ from the signature block” invalidated the substitution, rendering the
subsequent foreclosure proceedings invalid. Kalnoki, 214 Cal. Rptr. 3d at 302.
The court disagreed, stating that the omission was “obviously a mere inadvertence
or typographical error that was not material and did not affect the validity of the
Substitution.” Id.
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The plaintiffs in Kalnoki challenged the validity of the foreclosure
proceedings on numerous grounds, but the court found it “difficult to conceive”
how they were prejudiced. Id. at 311. The court reasoned that the borrowers “do
not dispute that they defaulted on their loan. They have pleaded no facts indicating
that the foreclosure sale, which has already occurred, would have been averted but
for the alleged deficiencies in the foreclosure process nor that the original lender
would have refrained from foreclosure under the circumstances presented.” Id. at
312.
Similarly here, IVE has never disputed that it owed Gold Strike 2 the
delinquent assessments. Nor is there any evidence the foreclosure would have
been averted but for the alleged deficiency in the foreclosure process, which
consisted solely of the omission of the word “homeowners” in the name of the
beneficiary. As in Kalnoki, the alleged deficiency involved the omission of one
word, and there is no question that the successor entity, Gold Strike 2, had the
authority to foreclose.
It is undisputed that Weiner not only knew that IVE owed the money to
Gold Strike 2, but also that it was not Gold Strike 1 that was foreclosing because
Weiner himself was on the board of Gold Strike 1. It also is undisputed that
Weiner, having amended the CC&R’s himself, knew that Gold Strike 2 was the
10
“full successor in interest” to Gold Strike 1. Thus, the bankruptcy court’s findings
that IVE knew from the outset that Gold Strike 2 was the beneficiary and the
foreclosing entity, as well as the findings that IVE knew it owed delinquent
assessments to the beneficiary and chose not to pay them have ample support in the
record.
California’s extensive nonjudicial foreclosure system protects the borrower,
or trustor, by informing it “of the default and the nature of the default so that the
trustor has an opportunity to reinstate the secured obligation.” 5 Miller & Starr,
California Real Estate § 13:225 (4th ed. June 2020 update); see also Knapp, 20
Cal. Rptr. 3d at 8 (“The statutes provide the trustor with opportunities to prevent
foreclosure by curing the default.”). IVE clearly knew of the default and the nature
of the default and had the opportunity to cure the default. Rather than taking
advantage of the statutory provisions to avoid the foreclosure, IVE challenged the
process on the basis of what it clearly knew was a one-word mistake. It is
“difficult to conceive” how IVE was prejudiced by the omission of the word
“homeowners” in the name of the beneficiary. Kalnoki, 214 Cal. Rptr. 3d at 311.
California law requires prejudicial procedural irregularity in order to
invalidate a foreclosure sale. There is no evidence that IVE was prejudiced by the
name in the notices. See Knapp, 20 Cal. Rptr. 3d at 14 (“the slight procedural
11
irregularity in the service of the Sale Notice” did not prejudice the borrowers
where they had notice of the sale date and there was no evidence of injury); see
also Lehner v. United States, 685 F.2d 1187, 1190–91 (9th Cir. 1982) (rejecting
borrower’s argument that the foreclosure was invalid because the notice was
mailed to the wrong address, reasoning that “the record reveals clearly that she
knew the foreclosure sale was imminent” and “refus[ing] to elevate form over
substance”); Aceves v. U.S. Bank, N.A., 120 Cal. Rptr. 3d 507, 519 (Ct. App. 2011)
(finding no prejudice where notice of default misidentified the beneficiary because
the notice accurately identified the trustee whom the borrower could contact for
information about the foreclosure). Because the error in the name did not cause
any prejudice to IVE, it, accordingly, did not render the foreclosure proceedings
invalid.
The judgment is AFFIRMED.
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