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Wells Fargo Bank v. Neilsen

October 22, 2009


(San Mateo County Super. Ct. No. CIV465331). Trial Judge: Hon. Steven L. Dylina.

The opinion of the court was delivered by: Haerle, Acting P.J.



Appellant is the former owner of a residence located at 1725 Van Buren Street in San Mateo. Respondents Wells Fargo Bank (WFB) and PHH Mortgage Corporation (PHH) are two of the former three holders of deeds of trust on that property. Respondent Robert Curtis, an attorney, was the foreclosure trustee for the property, which was sold at public auction in March 2007 to WFB. Subsequent to that sale and the payment of the sum owing to the third lien holder, a dispute arose as to the proper allocation of the remaining funds, some $368,000. Appellant claimed that most of those funds should be distributed to him, but respondent lien holders disagreed. Respondent Curtis accordingly filed a petition for instructions to determine the priority of the liens in the San Mateo County Superior Court. The trial court determined that the remaining funds were properly allocated to the other two lien holders, a determination which left nothing for appellant. He appeals, claiming (1) he was entitled to those funds and (2) respondent Curtis was not entitled to his attorney fees and costs. We disagree with both contentions and thus affirm the trial court.


As of March 2007, there were three deeds of trust on appellant‟s property. The first in point of time was to secure a loan of $100,000 payable to American Express Centurion Bank (AMEX) and recorded in January 2002; as of March 2007, the sum of $28,726 was owed on it. The second in point of time was to secure a loan of $75,000 payable to WFB and recorded in September 2002; as of March 2007, the sum of $78,433 was owed on it. The third was a deed of trust recorded in November 2003 to secure a loan made by PHH in the amount of $322,700; as of March 2007, the sum of $322,000 was payable on it.

As a part of the PHH loan transaction in November 2003, AMEX expressly subordinated its lien to the PHH obligation but, importantly, did not subordinate its loan to the WFB obligation. Additionally, WFB was not a party to the subordination agreement between AMEX and PHH and, thus, never consented to subordinate its second priority lien to the PHH mortgage lien.*fn1 As a result, an inconsistent status of liens resulted, i.e., the third lien in point of time, the PHH mortgage lien, became senior to the AMEX lien yet remained junior to the WFB lien, and the first lien in point of time, i.e., the AMEX lien, became junior to the third lien, the PHH lien, but remained senior to the WFB lien.

On March 19, 2007, a foreclosure sale was held on the property. WFB purchased the property for $400,000 at that sale; it did so, apparently, to protect its own economic interest since it now held a subordinate lien possibly subject to elimination. The debt then owing AMEX (as noted, $28,726) was paid from those funds, leaving a little over $371,000 left over. After the deduction of trustee fees and expenses, this sum was reduced to approximately $368,000.

Appellant, the homeowner, contended that, after the approximately $78,000 owing to WFB was paid, the balance of the "surplus funds" belonged to him, whereas lien holder PHH contended that its loan should be paid off from those funds. Respondent Curtis, the foreclosure trustee designated by AMEX, was uncertain as to how to resolve this dispute and so, on August 16, 2007, he filed a "Petition and Declaration Regarding Unresolved Claims and Deposit of Undistributed Surplus Proceeds" in San Mateo County Superior Court, pursuant to Civil Code section 2924j, subdivision (c).*fn2 Curtis‟s office served copies of this petition on appellant and respondents WFB and PHH.*fn3

The petition was assigned to Superior Court Judge Steven Dylina. On March 7, 2008, he issued a minute order requiring PHH to file a memorandum in support of its position regarding its entitlement to any surplus funds, and then asked all parties to file legal memoranda regarding whether the case of Bratcher v. Buckner (2001) 90 Cal.App.4th 1177 (Bratcher) was controlling regarding how such surplus funds should be distributed in a case such as this. Such memoranda were filed and a hearing on the legal issue held on March 28, 2008. At the conclusion of that hearing, the court held that Bratcher was, indeed, dispositive of the issue before it, and hence barred appellant from recovering any of the surplus funds. Subsequently, the two remaining unpaid lenders, respondents WFB and PHH, stipulated regarding both the distribution of the remaining surplus funds and the payment of attorney fees and costs to respondent and trustee Curtis. A judgment consistent with the court‟s verbal ruling of March 28 and that stipulation was filed on July 9, 2008.

Appellant filed a timely notice of appeal the following month.


Clearly, and as the parties agree in their briefs to us, the issue before us is purely and simply a legal one, and our standard of review de novo. But, as the trial court aptly observed during the course of its March 28, 2008, hearing, the legal issue presented in this case involves an "abstract and obtuse area of the law." Reduced to the simplest description we can fashion, it is: did the failure of the three lenders to make clear the relative priority of all three liens at the time of the 2003 subordination agreement mean that, as a matter of law, appellant is entitled to most of the funds left over from the foreclosure sale, and one of the three lenders/respondents (PHH) entitled to only a continuing lien on the real property? We agree with the trial court that the answer to this question is in the negative, and that it is appellant who is entitled to none of the so-called "surplus funds."

Appellant makes essentially these arguments in favor of reversal: (1) the statutory system applicable in a case such as this was and is Civil Code section 2924 et seq.,*fn4 i.e., the statutes governing non-judicial foreclosure sales of real property, and not Code of Civil Procedure (hereafter, CCP) section 704.760 et seq., the statutes governing the enforcement of liens on real property via judicially-enforced foreclosure (the statutes implicated in Bratcher); (2) section 2924 et seq. apply to "voluntary" lien cases, such as this case, whereas the CCP sections involved in Bratcher involved involuntary liens; (3) thus, the trial court was wrong to apply the "circuitry of liens" concept discussed and applied in Bratcher to a non-judicial foreclosure of voluntary liens such as was involved here; (4) the Bratcher court relied substantially on a decision of the Texas Supreme Court, ITT Diversified Credit v. First City Corp. (Tex. 1987) 737 S.W.2d 803 (ITT), but that case dealt with enforcement of liens on personalty under Texas statutes identical with sections 1102 and 9316 of California‚Äüs Commercial Code, statutes which deal exclusively with liens ...

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