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Countrywide Home Loans, Inc. v. United States

August 10, 2007

COUNTRYWIDE HOME LOANS, INC. A NEW YORK CORPORATION, PLAINTIFF,
v.
UNITED STATES OF AMERICA, ACTING THROUGH THE INTERNAL REVENUE SERVICE; LA JOLLA GROUP II, AN ENTITY FORM UNKNOWN; TERRANCE FRAZIER, INDIVIDUALLY AND DBA LA JOLLA GROUP II; NEVADA TRUST DEED SERVICES INC., A NEVADA CORPORATION; LA SALLE NATIONAL BANK, AS TRUSTEE FOR AVONDALE HOME EQUITY LOAN TRUST 1998-1, AN ENTITY FORM UNKNOWN; ROBERT G. GONZALES, AN INDIVIDUAL; MARISELA GONZALES, AN INDIVIDUAL; ALL PERSONS KNOWN AND UNKNOWN CLAIMING A RIGHT, TITLE OR INTEREST IN OR TO THE REAL PROPERTY COMMONLY KNOWN AS 765 EAST WOODHAVEN LANE, FRESNO, CALIFORNIA, DEFENDANTS. AND RELATED CROSS AND COUNTER CLAIMS.



The opinion of the court was delivered by: Anthony W. Ishii United States District Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW

FINDINGS OF FACT

1. The real property, which is the subject of this action, is generally described as 765 E. Woodhaven Lane, Fresno, California, and is legally described as Lot 14 of Tract No. 3374, Mount Vernon Place No. 1, in the City of Fresno, County of Fresno, State of California, according to the Map recorded August 24, 1984, in Book 41 at Pages 97 to 100 Inclusive, of Maps, Fresno County Records (the "Property"). The Property was owned by Robert Gonzales and Marisela Gonzales, husband and wife, as joint tenants.

2. A deed of trust executed by Robert G. Gonzales and Marisela Gonzales (the "Gonzaleses") as trustors in favor of Victoria Mortgage Company as beneficiary was recorded February 9, 1994 as Document No. 94021990 in Official Records of the Fresno County Recorder, encumbering the Property (the "CHL Deed of Trust"). (Trial Exhibit, hereafter "Ex." No. 1).

3. The beneficial interest under the CHL Deed of Trust was assigned to Countrywide Home Loans Inc. ("Countrywide") by an Assignment recorded on July 14, 1994 as Document No. 94112148 and thereafter Countrywide became the servicer of the loan. (Ex. No. 2).

4. When the CHL Deed of Trust was assigned to Countrywide, CTC Real Estate Services, Inc. ("CTC"), formerly known as CTC Foreclosure Services and as Countrywide Title Corporation. CTC became the trustee under the CHL Deed of Trust.

5. On February 25, 1998, a deed of trust executed by the Gonzaleses as trustors in favor of Avondale Federal Savings Bank in the amount of $18,900.00 was recorded as Document No. 98026346 (the "La Salle Trust Deed") encumbering the Property. (Ex. No. 13). Defendant La Salle National Bank, Trustee, is the successor in interest to Avondale, and this obligation is hereafter referred to as the "La Salle Loan."

6. On November 23, 1998, the United States made federal income tax assessments against Robert Gonzales for the calendar year 1997 in the amounts of $3,085 in tax, $269.40 in penalties and $128.88 in interest. On May 31, 1999, the United States made federal income tax assessments against Robert Gonzales for the calendar year 1998 in the amounts of $7,680 in tax, $231.80in penalties and $77.81 in interest. On May 29, 2000, the United States made federal income tax assessments against Robert Gonzales for the calendar year 1999 in the amounts of $8,278 in tax, $479.78 in penalties and $90.04 in interest.

7. On August 18, 2000, the United States filed a Notice of Federal Tax Lien with the Fresno County Recorder's Office with respect to the income tax assessments against Robert Gonzales for the years 1997, 1998 and 1999. The Notice of Federal Tax Lien was recorded as Document No. 2000-0099536. (Ex. No. 16).

8. After the Gonzaleses defaulted under the CHL Loan, CTC caused a Notice of Default and Election to Sell Under Deed of Trust to be recorded on April 9, 2001, as Document No. 2001-0047487("CHL NOD I"). (Ex. No. 3).

9. After expiration of the statutory three-month period, CTC caused a Notice of Trustee's Sale to be recorded on July 13, 2001, as Document No. 2001-0097583 ("CHL NOS I"). Ex. No. 4.

10. The Gonzaleses then cured the default under the CHL Loan.

11. On July 30, 2001, CTC employee, Angelica Del Toro, made an entry in the CTC foreclosure file concerning the pending foreclosure of the CHL deed of trust as follows: "Cancelled order on this date due to full payoff". (Ex. No. 58) This entry generated the preparation of a full reconveyance.

12. On August 3, 2001, CTC recorded a Full Reconveyance of the CHL Deed of Trust as Document No. 2001-0047487. (Ex. No. 5). This recording was a mistake and only the CHL NOD I should have been rescinded.

13. After default under the La Salle Loan, non-judicial foreclosure under the La Salle Trust Deed was initiated when Nevada Trust Deed Services, Inc. ("Nevada Trust") caused a Notice of Default and Election to Sale Under Deed of Trust to be recorded on November 21, 2001, as Document 01-0171086. (Ex. No. 14). The trustee's sale guarantee that Nevada Trust obtained when commencing its foreclosure in November 2001 did not show the Countrywide Deed of Trust because it had been reconveyed in August 2001.

14. The Gonzaleses made the August and September 2001 payments on the CHL Loan. However, the CHL Loan again went into default. On January 4, 2002, CTC caused a Notice of Default and Election to Sell Under the CHL Deed of Trust to be recorded as Document No. 2002-0001952 (the "CHL NOD II"). (Ex. No. 6). This Notice does not reveal that the deed of trust had been reconveyed. The trustee' sale guarantee issued by CTC as party of the January 4, 2002 CHL NOD II should have shown that the Countrywide Deed of Trust had been previously reconveyed. CTC did not realize it had erroneously reconveyed the Countrywide Deed of Trust until October 2002.

15. After expiration of the statutory three-month period for the default on the LaSalle Loan, Nevada Trust caused a Notice of Trustee's Sale to be recorded in February, 2002, as Document No. 2002-0031880 . This Notice of Trustee's Sale initially scheduled a trustee's sale date of March 15, 2002. (Ex. No. 15).

16. One of the parties entitled to receive notice of the foreclosure sale was the Internal Revenue Service ("IRS"), which had recorded a Notice of Federal Tax Lien against the Gonzaleses on August 18, 2000.

17. On February 20, 2002, Nevada Trust first provided the IRS with written notice of the pending sale of the Property pursuant to the LaSalle Loan. By certified mail, return receipt requested, on February 20, 2002, Nevada Trust sent a copy of the Notice of Trustee's Sale to the IRS addressed to 5104 N. Blythe Street, Suite 102 (Stop FR 5530), Fresno, California 93722. Based upon the delivery information contained on the return receipt, the IRS received the Notice of Trustee's Sale on February 25, 2002.

18. The notice provided on February 20, 2002, was the only written notice provided by Nevada Trust to the IRS with respect to the trustee's sale of the Property. Nevada Trust mailed notice of its trustee sale, along with appropriate documents, to the IRS in an untimely fashion. The IRS received only 23 day notice of the Nevada Trust foreclosure sale. Nevada Trust did not realize that it did not properly give notice to the IRS until after the foreclosure sale had taken place.

19. On March 15, 2002, Robert G. Gonzales filed a petition in the United States Bankruptcy Court, Eastern District of California (Fresno), Case No. 02-12384. The filing of the bankruptcy caused the Countrywide and the La Salle foreclosure sales to be postponed. Case No. 02-12384 was dismissed on April 25, 2002. (Ex. No. 7).

20. Robert G. Gonzales filed a second petition on April 26, 2002 in the United States Bankruptcy Court, Eastern District of California ( Fresno), Case No. 02-13889.

21. Countrywide filed a motion for relief from the automatic stay and obtained relief from the Automatic Stay in Case No. 02-13889. Case No. 02-13889 was dismissed on August 1, 2002. (Ex. No. 8).

22. The trustee's sale under the La Salle Trust Deed was conducted on August 15, 2002.

23. Alan Boyajian personally attended the sale on behalf of La Jolla Group II ("LJG II"). Terrance Frazier also personally attended the sale. Because he had arrived late, Boyajian and Frazier did not discuss the Property. Boyajian and Frazier (collectively "LJG II and Frazier") agreed on the day of the foreclosure sale to purchase the Property together.

24. Boyajian has access on his computer to information from title companies regarding comparable sales information, which he uses in forming opinions of the value of property he is thinking of purchasing at foreclosure sales.

25. Boyajian based his decision to bid at the foreclosure sale upon his estimate of the value of the Property, which was $235,000. In his experience, Boyajian expected the bidding to go up to $120,000 to $130,000. Expert witness Barbara Radcliffe estimated the value of the Property at $260,000 on August 15, 2002 and $415,000 as of April 26, 2007.

26. When Boyajian noticed that the Property was scheduled for sale, Boyajian recalled that the prior deed of trust on this property had been reconveyed. As a result, at the time of the sale Boyajian believed that he was bidding on a first deed of trust.

27. LJG II and Frazier submitted the successful bid of $24,200.00. (Ex. No. 17). Boyajian was "ecstatic" when LJG II acquired title to the Property for $24,200.00. Boyajian believed that he and Frazier had made a very favorable purchase of a property that was unencumbered by any senior deeds of trust.

28. The Trustee's Deed Upon Sale for the trustee's sale conducted by Nevada Trust on August 15, 2002, was recorded on August 27, 2002 as Document No. 02-145898. (Ex. No. 17).

29. The Trustees Deed Upon Sale issued in favor of LJG II and Frazier contained the statutory recitals provided for in California Civil Code § 2924.

30. After expiration of the statutory three-month period and receiving relief from Robert Gonzales' Automatic Stay in Bankruptcy Case No. 02-13889, CTC caused a second Notice of Trustee's Sale to be recorded on September 3, 2002 as Document No. 2002-0150872, setting a trustee's sale date of September 19, 2002 ("CHL NOS II").

31. On or about August 30, 2002, LJG II and Fraizer learned that Countrywide had noticed a foreclosure sale on the Property for September 19, 2002.

32. Unaware that the Countrywide Deed of Trust had been reconveyed, Frazier authorized sending Countrywide $22,721.22 to reinstate the default and prevent the sale from going forward on September 19, 2002. When Boyajian learned that this payment had been made, he notified Frazier about the reconveyance and contacted Countrywide to obtain the return of funds.

33. On September 24, 2002, Countrywide instructed CTC to rescind the CHL NOD II and CTC rescinded CHL NOD II as Document No. 2002-0166168.

34. In 2002, it was not CTC's custom and practice to examine the chain of title to determine whether there had been prior foreclosures under the same deed of trust before processing a new foreclosure. The Trustee Sale Guarantee obtained by CTC for CHL NOD II did not contain a reference to the Full Reconveyance. Landsafe Title Company, who prepared this Trustee Sale Guarantee, failed to provide this information to CTC. Landsafe is not part of First American Title who provided the Trustee Sale Guarangeefor CHL NOD I. CTC therefore did not discover the error with the Full Reconveyance until October 2002.

35. On October 15, 2002, CTC recorded a document entitled Notice of Void Reconveyance as Document No. 2002-08142.

36. In November 2003, Countrywide offered to return and refund the amount of LJG II's foreclosure bid, plus interest.

37. On or about March 19, 2004 Countrywide, CTC, Nevada Trust, and La Salle entered into a written settlement that had been reached in November 2003. As part of the settlement La Salle authorized Nevada Trust to rescind the Trustees Deed Upon Sale in favor of LJG II and Frazier and assigned the La Salle Note and the La Salle Trust Deed to Countrywide. (Ex. No. 18).

38. On or about June 24, 2004, Nevada Trust caused a "Notice of Rescission of Trustee's Deed Upon Sale" to be recorded as Document No. 04-138117. (Ex No. 11).

39. LJG II is a general partnership consisting of Alan Boyajian and Lee Kleim. LJG II has been in the primary business of buying, selling, and leasing residential foreclosure properties since 1987. Boyajian has been in the residential foreclosure business since 1974.

40. Boyajian and Frazier frequently bought properties at foreclosure sales together, Boyajian and Frazier rarely bided against each other, and 95% of the time Boyajian and Frazier bid as partners. If both Boyajian and Frazier showed up at the same sale, their understanding was that each party was acquiring a 50% interest in the property unless someone told the other he was not interested in the property.

41. Both Boyajian and Frazier were experienced and sophisticated "professional bidders." Boyajian has purchased hundreds of properties at foreclosure sales. Frazier started helping his guardian, Michael Thaler, in the foreclosure sale business when he was 13 years of age. Frazier started buying property on his own in 1995.

42. LJG II has a process it uses to locate properties being offered at foreclosure sales. Office staff clip and post notices of sales, which are organized by date. Because of the large volume of such notices, Boyajian generally only reviews the notices within a week to several days prior to the scheduled sale.

43. Most foreclosure sales are cancelled or postponed.

44. It was not Boyajian's business practice to obtain preliminary reports from a title insurer. Under the circumstances this process takes too long and is too costly. Neither Boyajian nor Frazier obtained a preliminary title report, guarantee or commitment from a title company concerning a property prior to bidding at the foreclosure sale. Neither Boyajian nor Frazier pay for the information they receive regarding properties.

45. In 2002, Boyajian's usual practice to obtain information on property was to contact a customer service at a title company to obtain information about open deeds of trust and encumbrances. If a sale is postponed, a new research is done.

46. Boyajian focuses his research on the position of the deed of trust they are buying and whether there are any open deed of trust against the property. Neither Boyajian nor Frazier look into whether there are judgment liens on a property, tax liens, or other liens. These are risk they take into account in their business.

47. Concerning LJG II's practices on this purchase, Boyajian looked at the information he had on the property in his file and did not see any open deeds of trust.

47.a. Boyajian's investigation of the state of title to the Property first consisted of requesting from First American Title Company copies of "open" trust deeds, i.e., trust deeds which had not been reconveyed.

47.b. Second, Boyajian contacted Sandi Jenkins, a customer service representative at First American Title, in order to obtain more information on the Property. In his initial conversation with Jenkins, she told Boyajian that the LaSalle Deed of Trust was going to sale as a first deed of trust. Boyajian responded that he though there would be another deed of trust ahead of the LaSalle Deed of Trust. Jenkins responded that there had been, but it was paid off. Boyajian asked Jenkins to send him all information about the Property.

47.c. On April 29, 2002, Boyajian received a 15 page fax from Jenkins. The documents included the CHL Deed of Trust and a January 4, 2002 notice of default.

47.d. Because the original fax did not include a copy of a recorded reconveyance on the CHL Deed of Trust, on May 2, 2002, Jenkins faxed this document.

48. In reviewing the documents, Boyajian determined that a notice of default had been recorded on the CHL Deed of Trust after the full reconveyance. Boyajian knew there was an inconsistency between the Full Reconveyance and the CHL NOD II. Boyajian knew that a mistake had been made by Countrywide at the time that he bid at the Nevada Trust foreclosure sale on August 15, 2002 because Countrywide had filed a notice of reconveyance and then a notice of default.

49. Because the Countrywide deed of trust had been reconveyed, Boyajian decided that the CHL NOD II had been recorded in error. Boyajian's conclusion -- that the CHL ...


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