Matson v. S.B.S. Trust Deed Network ( 2020 )

Filed 3/5/20
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
MATTHEW MATSON et al., D074442
Plaintiffs and Appellants,
v. (Super. Ct. No. 37-2017-00008676-
CU-OR-CTL)
S.B.S. TRUST DEED NETWORK et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of San Diego County, John S.
Meyer, Judge. Affirmed.
Scali Rasmussen; Halbert B. Rasmussen, Jeffrey W. Erdman and Madeleine K.
Lee, for Plaintiffs and Appellants.
Mulvaney Barry Beatty Linn & Mayers; Everett G. Barry and Christopher B. Ghio
for Defendants and Respondents.
Plaintiffs Matthew Matson and Matson SDRE Group, LLC (collectively plaintiffs)
purchased a deed of trust at a nonjudicial foreclosure sale. S.B.S. Trust Deed Network
(SBS) was the trustee and Bank of Southern California, N.A. (BSC) (referred to
collectively as defendants) was the beneficiary of the deed of trust. Matson, relying on a
software application called PropertyRadar, believed that the deed of trust was in first
position on the property. He purchased the deed of trust for $502,000 at the foreclosure
auction, then learned that the lien was in second position, with a much lower fair market
value than the price paid.
Plaintiffs filed a first amended complaint against defendants for rescission of the
sale and declaratory relief, relying on Matson's unilateral mistake of fact and the
unconscionable price he paid for the deed of trust. The parties filed cross-motions for
summary judgment. The court granted summary judgment for defendants. Plaintiffs
have appealed. We affirm the judgment.
BACKGROUND
Undisputed Facts
The deed of trust that is the subject of this lawsuit was recorded in 2007, securing
a Small Business Administration loan in the original amount of $475,000. It was in
second place, as a first deed of trust had been recorded in 2004 and assigned to Bank of
America in 2016.
SBS, the trustee, recorded a notice of default and election to sell on June 10, 2016.
BSC, the beneficiary, notified SBS that a total of $414,510.62 was due on the note and
deed of trust. BSC authorized a flat opening bid of $71,000 on its behalf. A "flat bid"
means that the beneficiary did not authorize any increases in its bid. SBS recorded a
notice of sale indicating a sale date of February 1, 2017, later continued to March 1,
2017. The notice of sale stated, "The sale will be made, but without covenant or
warranty, express or implied, regarding title, possession, or encumbrances, to pay the
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remaining principal sum of the note(s) secured by the Deed of Trust . . . ." It also gave
notice to bidders that they were bidding on a lien, which might be a junior lien. The
notice encouraged bidders to investigate the lien through the county recorder's office or a
title insurance company.
In January 2017, Matson learned about the property and potential foreclosure from
PropertyRadar. The PropertyRadar user agreement stated that, "You should not rely on
these Sites and the information and resources contained on these Sites as a replacement or
substitute for any professional, financial, legal or other advice or counsel."1
Matson did not follow up with any further investigation on the deed of trust until
the morning of the sale, March 1, 2017, when he saw notice of the sale on PropertyRadar
again. PropertyRadar identified the loan as being in position "1." Based on his review of
the information on PropertyRadar, Matson believed that the loan being foreclosed was a
refinance of the original purchase loan, and therefore that it was in first position to the
title. Defendants disputed this, pointing out that the PropertyRadar profile also showed
the 2004 deed of trust securing the original purchase loan by Countrywide Home Loans
and its 2016 assignment of the deed of trust to Bank of America. We accept both
Matson's statement of his belief and defendants' response that the profile contained
sufficient information to ascertain that the 2004 loan remained in first position.
1 Plaintiffs objected to consideration of PropertyRadar's user agreement. The trial
court did not rule on the objections. Counsel for defendants repeated these terms of the
user agreement at the summary judgment motion hearing. Plaintiffs did not object.
3
Matson obtained a 94-page profile on the property from a title company about an
hour before the sale. Matson did not read the full property profile. He reviewed only the
notice of sale and verified that the amount of the loan on the about-to-be foreclosed deed
of trust was consistent with the information listed on PropertyRadar. Matson called a
telephone number that he believed to be SBS, but it was actually a separate company,
Superior Default Services (SDS). SBS had hired SDS to conduct the foreclosure sale.
Matson asked an SDS representative if "the first had cleared for sale," and the
representative responded, "Yes, it's cleared for sale." Matson never asked, and the
representative never confirmed whether the deed being sold at auction was a first-priority
lien. Matson went to the foreclosure sale with cashier's checks totaling $505,000. There
were two other bidders at the sale, successively raising their bids from BSC's opening bid
of $71,000 until plaintiffs' bid of $502,000 was accepted as the winning bid. A BSC
representative was surprised by the price paid at the auction because she knew there was
limited equity available in the property.
Matson tendered his cashier's checks, and received and executed a receipt of
funds. A disclaimer on the receipt of funds stated, "Buyer and Buyer's Agent agree that
neither the Trustee nor its Agents make any express or implied warranties with respect to
the real property being purchased. . . . Buyer and Buyer's Agent acknowledge that it has
not relied upon any representation by the Trustee or its Agent. Buyer and Buyer's agent
agree that the real property is being sold on an "AS IS" basis. Buyer and Buyer's Agent
agrees [sic] that all funds received by Trustee or its Agents are non-refundable for any
reason." Plaintiffs contend that the receipt of funds does not contain any disclaimers
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about the title of the property. Matson thought the disclaimers applied only to the
physical condition of the property.
Later that evening, Matson contacted a real estate agent who had an active listing
on the property. As a result of the contact, Matson learned that the deed of trust he
purchased might be in second position, not first. Matson tried to stop payment on the
cashier's checks the next day. He signed declarations under penalty of perjury stating that
the cashier's checks had been stolen. Nonetheless, the bank paid all three cashier's
checks.
Matson also sent a letter to defendants stating his belief that he had been defrauded
and did not wish to purchase the deed of trust. He sent a formal notice of rescission on
March 9. When the trustee mailed the trustee's deed upon sale to Matson on March 10,
Matson returned it with a notice of rejection. The trustee however, recorded the deed and
a preliminary change of ownership. The SBS employee who recorded the deed had never
before recorded a deed over a buyer's objection, but the SBS employee most qualified to
testify about normal practice and procedure said that SBS had recorded trustee's deeds
and preliminary change of ownership forms numerous times.
Ruling at Trial
The trial court found no basis for rescission because plaintiffs could not show
irregularity, unfairness or fraud in the nonjudicial foreclosure notice and sale process
itself. Plaintiffs' mistakes were based on reliance on the PropertyRadar software and
calls to SDS, mistakenly thought to be SBS. Moreover, plaintiffs had a property report
from a title company, but failed to read the entire document. None of these information
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sources was part of the sales process. The court further stated, at the hearing on the
summary judgment motions, that (1) Matson made a mistake in failing to adequately
investigate before engaging in the foreclosure sale, which was known to be a risky
enterprise; (2) Matson had a property report that contained information on all the deeds of
trust on the property but did not fully read it; and (3) Matson took the risk of engaging in
a sale without fully investigating the terms of the sale or failing to take the time to
understand them.
The court granted summary judgment for defendants and dismissed the complaint
with prejudice. Plaintiffs then filed this appeal.
DISCUSSION
Plaintiffs claim they are entitled to a judgment of rescission because they made a
unilateral mistake of fact that resulted in an unconscionable loss to them and a
corresponding unconscionable windfall to defendants. We conclude that plaintiffs are not
entitled to rescission of the nonjudicial foreclosure sale because there was no irregularity
in the sale. Under the common law claim of unilateral mistake, plaintiffs bore the risk of
mistake, and thus relief cannot be granted on that ground.
Standard of Review
We review the record and the decision of the trial court de novo to determine if
facts not subject to triable dispute warrant judgment for the moving party. (Biancalana v.
TD Services Co. (2013) 56 Cal. 4th 807, 813 (Biancalana).) To prevail, defendants must
show that plaintiffs have not produced material facts that could be interpreted to support
their claim. In other words, defendants must show that an element of the plaintiffs' claim
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cannot be established with all the available facts. (Code Civ. Proc., § 437c, subd. (c);
Kahn v. East Side Union High School Dist. (2003) 31 Cal. 4th 990, 1002–1003 (Kahn).)
The facts here are not disputed in any material way. The parties dispute only the
conclusions of law that can be drawn from the facts.
Nonjudicial Foreclosure Sales
"Civil Code sections 2924 through 2924k[2] . . . govern nonjudicial foreclosure
sales pursuant to a power of sale contained in a deed of trust. 'The purposes of this
comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick,
inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the
debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly
conducted sale is final between the parties and conclusive as to a bona fide purchaser.
[Citations.]' '[T]he statutory scheme also evidences an intent that a properly conducted
sale be a final adjudication of the rights of the creditor and debtor [citations] and the
sanctity of title of a bona fide purchaser be protected.' [Citation.] 'The trustee at a
foreclosure sale, moreover, has a duty to conduct the sale fairly and openly, and to secure
the best price for the trustor's benefit.' [Citation.]" (Biancalana, supra, 56 Cal.4th at
pp. 813–814; Lona v. Citibank, N.A. (2011) 202 Cal. App. 4th 89, 101 (Lona).) "A bid at a
trustee's sale is deemed by statute to be an irrevocable offer by that bidder to purchase the
2 All further statutory references are to the Civil Code.
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property for that amount. [Citation.]" (Alliance Mortgage Co. v. Rothwell (1995) 10
Cal. 4th 1226, 1237 (Alliance Mortgage); § 2924h, subd. (a).)3
"[A]s a general rule, a trustee's sale is complete upon acceptance of the final bid."
(Nguyen v. Calhoun (2003) 105 Cal. App. 4th 428, 440–441 (Nguyen); § 2924h, subd. (c)
["the trustee's sale shall be deemed final upon the acceptance of the last and highest
bid"].) The trustee conveys the lien or property by delivery of a trustee's deed to the
purchaser. "Absent defects in the foreclosure procedure itself, delivery of the trustee's
deed following a foreclosure sale is " 'merely a ministerial act.' " (Nguyen, at p. 441; see
also Residential Capital v. Cal-Western Reconveyance Corp. (2003) 108 Cal. App. 4th
807, 819 (Residential Capital).) " 'If the trustee's deed recites that all statutory notice
requirements and procedures required by law for the conduct of the foreclosure have been
satisfied, a rebuttable presumption arises that the sale has been conducted regularly and
properly.' " (Biancalana, supra, 56 Cal.4th at p. 814.) This presumption becomes
conclusive upon delivery of the trustee's deed to a bona fide purchaser. (Ibid., Lona,
supra, 202 Cal.App.4th at p. 102.) The trustee's deed delivered to plaintiffs here
contained the requisite recitals.
A party can move in equity to set aside a nonjudicial foreclosure sale if there are
irregularities in the notice or procedure of the sale. (Lona, supra, 202 Cal.App.4th at
3 Section 2924h, subdivision (a) states: "Each and every bid made by a bidder at a
trustee's sale under a power of sale contained in a deed of trust or mortgage shall be
deemed to be an irrevocable offer by that bidder to purchase the property being sold by
the trustee under the power of sale for the amount of the bid." (Italics added.)
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pp. 103–104.) "[T]he elements of an equitable cause of action to set aside a foreclosure
sale are: (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive
sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the
party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced
or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor
or mortgagor tendered the amount of the secured indebtedness or was excused from
tendering." (Id. at p. 104.) " ' " '[G]ross inadequacy of price coupled with even slight
unfairness or irregularity is a sufficient basis for setting the sale aside.' " ' " (Biancalana,
supra, 56 Cal.4th at p. 814.) Inequity of price is not sufficient alone to set aside a sale,
however. " 'Where there is no irregularity in a nonjudicial foreclosure sale and the
purchaser is a bona fide purchaser for value, a great disparity between the sales price and
the value of the property is not a sufficient ground for setting aside the sale.' " (Alliance
Mortgage, supra, 10 Cal.4th at p. 1237, quoting Moeller v. Lien (1994) 25 Cal. App. 4th
822, 832 (Moeller).) There must be some unfairness or irregularity in the sale process,
although the irregularity or unfairness may be slight, to rescind a nonjudicial foreclosure
sale. (Biancalana, at p. 814; Lona, at p. 104.)
The trial court granted judgment for defendants because it found "there was no
irregularity, unfairness, or fraud in the notice and procedural requirements for the
foreclosure sale." We also conclude, after independent review, that plaintiffs produced
no evidence demonstrating an irregularity in the notice and procedure of the sale.
Plaintiffs first contend that irregularity was shown by the trustee's "forc[ing of] the
trustee's deed upon [plaintiffs] over Mr. Matson's objection." Delivery of the trustee's
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deed, however, is a ministerial act after the sale has been completed by accepting the
highest bid. (§ 2924h, subd. (c)4; Residential Capital, supra, 108 Cal.App.4th at p. 819;
Nguyen, supra, 105 Cal.App.4th at p. 441.) Although, plaintiffs notified the trustee that
they were rejecting the deed of trust and returned the deed to the trustee, these actions
had no legal effect as the sale was completed upon acceptance of the final bid. Delivery
of the deed by the trustee makes conclusive the presumption that the sale was properly
conducted (Biancalana, supra, 56 Cal.4th at p. 814), and recordation of the deed perfects
the title. (§ 2924h, subd. (c).) Although the purchaser ordinarily records the trustee's
deed to perfect his title to the deed, the law does not specify who must record the deed.
(Ibid.) The employee of the trustee who had the most knowledge about the practices and
procedures of the trustee stated that the trustee had recorded the deed numerous times.
We further note that recording of the deed of trust by the trustee is not an
irregularity in the notice or procedure of the sale because again, it occurs after the sale
has been completed. Irregularities that are outside or "dehors" the notice and procedure
of the sale may not be used to set aside a nonjudicial foreclosure sale. (Nguyen, supra,
105 Cal.App.4th at p. 445; 6 Angels, Inc. v. Stuart–Wright Mortgage, Inc. (2001) 85
Cal. App. 4th 1279, 1285; Crofoot v. Tarman (1957) 147 Cal. App. 2d 443, 447.) Plaintiffs
cited no authority in support of their claim that the recording of the deed of trust was part
4 Section 2924h, subdivision (c), states in part: "[T]he trustee's sale shall be deemed
final upon the acceptance of the last and highest bid, and shall be deemed perfected as of
8 a.m. on the actual date of sale if the trustee's deed is recorded within 15 calendar days
after the sale, or the next business day following the 15th day if the county recorder in
which the property is located is closed on the 15th day."
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of the sale procedure in their opening brief, and cited only one case in their reply brief,
Schep v. CapitalOne Bank, N.A. (2017) 12 Cal.App.5th 1331. Schep, however, was not
an action for rescission but for slander of title. In that context, the court held that the
trustee's recording of a notice of sale, notice of default, and the trustee's deed were within
the privilege for communications made without malice. (Id. at p. 1337.) Schep did not
define or identify the actions that are part of the sale procedure and does not support
plaintiffs' position. Recording of the trustee's deed occurred after the sale was concluded
and does not satisfy the requirement of an irregularity in the notice and procedure of the
sale.
Plaintiffs also claim that the trustee's recording of the deed after plaintiffs
attempted to reject it was "willfully oppressive." However, nothing about the sale was
willfully oppressive as plaintiffs voluntarily bid at the auction.
Plaintiffs further claim the sale was irregular because an employee of BSC, the
beneficiary, was surprised at the high price paid for the deed of trust. Again, plaintiffs
cite no legal authority for this claim. BSC's surprise occurred after the conclusion of the
sale and had no influence on plaintiffs' decision to submit a bid of $502,000. BSC did
not intentionally take advantage of plaintiffs' mistake. In M.F. Kemper Const. Co. v. City
of L.A. (1951) 37 Cal. 2d 696 (Kemper), where the city had knowledge of a contractor's
unreasonably low bid before accepting that bid, the court found it would be unjust and
unfair to permit the city to take advantage of the contractor's mistake. (Id. at pp. 702–
703.) Here, BSC's representative did not know the amount of the bid until after the sale
was already completed by plaintiffs' submission of their irrevocable offer of $502,000.
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BSC did not intentionally take advantage of plaintiffs' mistake, as the city did in Kemper.
The surprise of the BSC employee was outside the sale process.
We conclude defendants established that plaintiffs cannot prove their claim for
rescission of the nonjudicial foreclosure sale because they have produced no evidence
suggesting an irregularity, fraud or unfairness in the nonjudicial foreclosure notice and
sale proceedings. (Biancalana, supra, 56 Cal.4th at p. 814; Lona, supra, 202 Cal.App.4th
at 104.)
Unilateral Mistake of Fact
Plaintiffs contend that their claim may, and should, be reviewed under the
common law contract principle of unilateral mistake of fact, relying on California Golf,
L.L.C. v. Cooper (2008) 163 Cal. App. 4th 1053, 1070 (California Golf) for the application
of common law remedies to nonjudicial foreclosure sales.
In California Golf, as here, the buyers at a nonjudicial foreclosure sale had a
change of mind after purchasing a deed with cashier's checks. The buyers sought to
cancel the sale by falsely telling the bank that had issued the cashier's checks that the
checks had been lost. Unlike here, the bank cancelled the cashier's checks, depriving the
lender of the proceeds of the sale. (California Golf, supra, 163 Cal.App.4th at pp. 1058–
1059.) The court held that the nonjudicial foreclosure sale statutory scheme did not
prevent the loan beneficiary from suing the buyers for fraud and breach of warranty due
to their fraudulent affidavits causing cancellation of the cashier's checks. The court
stated, "although the statutory scheme governing nonjudicial foreclosures has, in certain
circumstances, been held to constitute the exclusive civil remedy for wrongdoing in the
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context of a nonjudicial foreclosure, that exclusivity cannot be applied to immunize the
fraudulent and apparently felonious conduct of [the buyers] in this case. . . . [¶]
California courts have repeatedly allowed parties to pursue additional remedies for
misconduct arising out of a nonjudicial foreclosure sale when not inconsistent with the
policies behind the statutes." (Id. at pp. 1067, 1070, italics added.)
We note plaintiffs are not pursuing a remedy for misconduct by defendants.
Rather, they are seeking to set aside their own irrevocable offer and the procedurally
correct notice and sale, based on their own mistake. That is inconsistent with the policies
behind the nonjudicial foreclosure statutes. (See California Golf, supra, 163 Cal.App.4th
at p. 1070.) Permitting a common law claim of mistake by the buyer to void the sale
would deprive the beneficiary of a quick, inexpensive and efficient remedy. It would
upend the finality of the sale and the statutory intent that a properly conducted sale be
final among the parties. (Moeller, supra, 25 Cal.App.4th at p. 830 [nonjudicial
foreclosure sale statutes prevent debtor from contesting validity of nonjudicial
foreclosure sale in which property sold for one-quarter of its value].) A buyer's
withdrawal from an irrevocable offer due to its own mistake "would be inconsistent with
the comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to
incorporate another unrelated cure provision into statutory nonjudicial foreclosure
proceedings." (Id. at p. 834.)
Nonetheless, the trial court considered this argument at the hearing on the motion
for summary judgment and found that plaintiffs could not rescind the nonjudicial
foreclosure sale based on their own unilateral mistake. The trial court found that the
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plaintiffs bore the risk of mistake by engaging in the sale. It stated that Matson should
have investigated the lien more closely. The court continued, "[T]he mistake can't be the
result of neglect of a legal duty. You can't be careless and [Matson] was careless." The
court emphasized the riskiness of purchasing deeds of trust at foreclosure sales, and the
fact that Matson had a title report but did not take the time to read it. After independent
review, we reach the same conclusion.
Plaintiffs also contend they have a common law remedy based on Donovan v. RRL
Corp. (2001) 26 Cal. 4th 261, 281–282 (Donovan). In Donovan, an automobile dealer
placed an advertisement in a newspaper to sell a car. The newspaper made typographical
and proofreading errors that resulted in the advertisement listing a price that was
significantly below the intended sales price. Buyers offered the advertised price for the
car. The dealer refused to accept the erroneous offer. The buyers sued the dealer for
breach of contract. (Id. at pp. 266–267.) The Supreme Court held that although a
Vehicle Code section required the dealer to sell at an advertised price, that statute did not
exclude common law principles authorizing rescission of a contract on the ground of
mistake. Rescission was warranted because the seller's unilateral failure to discover
typographical and proofreading errors was made in good faith, the seller did not bear the
risk of the mistake, and enforcement of the contract with the erroneous price would be
unconscionable. (Id. at p. 267.) The dealer did not neglect a legal duty because the
mistake was a matter of ordinary negligence or carelessness, such as sometimes occurs in
the conduct of "reasonable and cautious businesspersons." (Id. at p. 283.)
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The Donovan court set forth the following grounds for a party to establish
rescission based upon unilateral mistake (changing the identification of parties to fit the
facts of this case); "Where the [defendant] has no reason to know of and does not cause
the [plaintiff's] unilateral mistake of fact, . . . : (1) the [plaintiff] made a mistake
regarding a basic assumption upon which the [plaintiff] made the contract; (2) the
mistake has a material effect upon the agreed exchange of performances that is adverse to
the [plaintiff]; (3) the [plaintiff] does not bear the risk of the mistake; and (4) the effect of
the mistake is such that enforcement of the contract would be unconscionable."
(Donovan, supra, 26 Cal.4th at p. 282.) Plaintiffs here concentrate their argument on
claiming that enforcement of the contract would be unconscionable as to them, because
the price they paid substantially exceeded the fair market value of the deed of trust. They
cannot, however, meet the third requirement, that they do not bear the risk of mistake.
In Donovan, the court examined section 154 of the Restatement Second of
Contracts. (Donovan, supra, 26 Cal.4th at p. 283.) That section states, "A party bears the
risk of a mistake when . . . (b) he is aware, at the time the contract is made, that he has
only limited knowledge with respect to the facts to which the mistake relates but treats
his limited knowledge as sufficient. . . ." (Ibid.) That was the case here. Matson
obtained a 94-page title report but did not read it thoroughly. (See also Amin v. Superior
Court (2015) 237 Cal. App. 4th 1392.)
Acting with limited knowledge was not the error in Donovan. The court granted
relief to the car dealer because he acted with the care common to a "reasonable and
cautious businessperson" in delegating to the newspaper the printing of the car price in
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the advertisement. (Donovan, supra, 26 Cal.4th at p. 283.) Matson, on the other hand,
did not act as a cautious businessperson in deciding to bid at a nonjudicial foreclosure
sale in full reliance on a private software application, without his own thorough
investigation of the liens on the property.
Here, Matson intended to make an offer of $502,000, in order to submit the
highest bid over two other bidders. He did not make a mere clerical error. Plaintiffs
were not entitled to relief under the common law principle of a unilateral mistake of fact
due to their error in judgment in intentionally making that high offer.
DISPOSITION
The judgment is affirmed. Defendants are to recover costs on appeal.
BENKE, Acting P. J.
WE CONCUR:
O'ROURKE, J.
IRION, J.
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