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Malkoskie v. Option One Mortgage Corp.

September 23, 2010


APPEAL from the judgment of the Superior Court of Los Angeles County. Rolf M. Treu, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC397225).

The opinion of the court was delivered by: Grimes, J.


Plaintiffs and appellants Mariana Malkoskie and Pablo Juarez (plaintiffs)*fn1 brought this action for quiet title and related claims seeking to set aside a non-judicial foreclosure sale and subsequent eviction. They sued various defendants, including Sand Canyon Corporation, erroneously sued as Option One Mortgage Corporation (Option One),*fn2 and Wells Fargo Bank, N.A., as Trustee for Master Asset Backed Securities Trust 2005 OPT1 (Wells Fargo). Option One and Wells Fargo (collectively defendants) filed a demurrer challenging plaintiffs' operative second amended complaint. The trial court sustained defendants' demurrer without leave to amend and entered a judgment of dismissal. Plaintiffs timely appealed, arguing the demurrer was erroneously sustained because the foreclosure sale was void, not merely voidable, and the stipulated judgment in the summary unlawful detainer proceedings did not have preclusive effect on the issue of lawful title to the subject property. We find the validity of title was conclusively resolved in the unlawful detainer action and affirm the judgment on that basis.


Plaintiffs lived in the single family home located at 2112 Duane Street in Los Angeles, California 90039 (the property). Plaintiff refinanced the property in late 2004 with nonparty Home Loans USA, Inc., which loan was secured by a note and deed of trust recorded against the property. The 2004 deed of trust executed by plaintiff identified Home Loans USA, Inc. as the beneficiary and Premier Trust Deed Services as trustee. The deed of trust also contained a power of sale provision in favor of the beneficiary. Sometime before May 2007, plaintiff became delinquent on her loan. A notice of default was served and recorded on May 30, 2007, by First American Title Company as agent for Alliance Title Company (Alliance), identified as trustee, on behalf of Option One, identified as the beneficiary. As of the date of recording of the notice of default, no substitution had been served or recorded showing Option One as the new beneficiary in place of Home Loans USA, Inc., nor any substitution showing Alliance as the new trustee in place of Premier Trust Deed Services.

Sometime in September 2007, a substitution was recorded evidencing Alliance as the newly assigned trustee as designated by Option One, but there was still no substitution showing Option One as the new beneficiary of record with the statutory authority to designate a substituted trustee. The beneficiary of record in September 2007 remained Home Loans USA, Inc., the original beneficiary and lender to plaintiff in her refinance transaction. Thereafter, Alliance conducted the non-judicial foreclosure sale on February 4, 2008, and Wells Fargo acquired the property on a credit bid. More than two months later, on April 18, 2008, the substitution was recorded acknowledging assignment of the deed of trust from Home Loans USA, Inc., to Option One as the new beneficiary, as was yet another substitution evidencing assignment of beneficiary status from Option One to Wells Fargo. The deed arising from the February 4, 2008 foreclosure sale documenting the purchase by Wells Fargo was also recorded on April 18, 2008.

After the foreclosure sale on February 4, 2008, Wells Fargo instituted an unlawful detainer action against plaintiffs. Plaintiffs filed an answer to the unlawful detainer complaint, denying the material allegations and raising two affirmative defenses, one alleging the foreclosure sale was invalid due to improper notice and the other alleging unspecified "irregularities in the sale." At the time of trial in March 2008, Wells Fargo and plaintiffs agreed to entry of a stipulated judgment in the unlawful detainer action in favor of Wells Fargo. Plaintiffs were forcibly evicted from the property on May 12, 2008.

Plaintiffs then filed this action against Option One, Wells Fargo, and First American Title Company, among others. The operative second amended complaint asserted claims for declaratory relief, quiet title, cancellation of trustee's deed, willful wrongful foreclosure, negligent wrongful foreclosure, wrongful eviction and negligence.*fn3 The trial court sustained defendants' demurrer without leave to amend. This appeal followed.


Our standard of review following the sustaining of a demurrer is well established. " ' "We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed." [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.' [Citations.]" (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)

Plaintiffs raise two primary issues on appeal. The first issue is whether defects in the non-judicial foreclosure sale rendered the proceedings void or voidable, and if void, did plaintiffs have to plead there was a tender of payment to cure the default in order to challenge the sale. The second issue is whether the stipulated judgment in the unlawful detainer action brought by Wells Fargo against plaintiffs bars plaintiffs' claims in this action. Plaintiffs contend the trial court erroneously sustained defendants' demurrer on both grounds. We conclude the demurrer was properly sustained without leave to amend because the stipulated judgment bars this action. Since this ground is dispositive, we need not and do not consider whether there were defects in the foreclosure sale. (Longshore v. County of Ventura (1979) 25 Cal.3d 14, 21 ["judgment based on an order sustaining a general demurrer must be affirmed if any one of the several grounds of demurrer is well taken"].)

Defendants argued successfully below that the stipulated judgment in the related unlawful detainer action brought by Wells Fargo against plaintiffs was res judicata as to plaintiffs' claims in this action which all arise from the alleged invalidity of the foreclosure sale. Plaintiffs argue a consent or stipulated judgment arising from a summary unlawful detainer proceeding has limited res judicata*fn4 effect. They contend therefore that the issue of the improper trustee conducting the sale was not embraced by or otherwise resolved by the stipulated judgment such that there is no bar to plaintiffs' claims seeking to undo the foreclosure sale as invalid. We disagree.

An unlawful detainer action is a summary proceeding ordinarily limited to resolution of the question of possession. (Vella v. Hudgins (1977) 20 Cal.3d 251, 255 (Vella).) Accordingly, it is true that any judgment arising therefrom generally is given limited res judicata effect. (Ibid.) However, a "qualified exception to the rule that title cannot be tried in unlawful detainer is contained in Code of Civil Procedure section 1161a, which extends the summary eviction remedy beyond the conventional landlord-tenant relationship to include certain purchasers of property . . . ." (Ibid.) Code of Civil Procedure section 1161a, subdivision (b)(3) (section 1161a), provides an unlawful detainer action may be filed "[w]here the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust . . . and the title under the sale has been duly perfected." Furthermore, under California law a "judgment entered without contest, by consent or stipulation, is usually as conclusive a merger or bar as a judgment rendered after trial." (7 Witkin, Cal. Procedure (5th ed. 2008) Judgment, § 372, p. 996; accord, Victa v. Merle Norman Cosmetics, Inc. (1993) 19 Cal.App.4th 454, 460-461; De Weese v. Unick (1980) 102 Cal.App.3d 100, 105.)

The Supreme Court in Vella acknowledged the decisional law holding that "subsequent fraud or quiet title suits founded upon allegations of irregularity in a trustee's sale are barred by the prior unlawful detainer judgment." (Vella, supra, 20 Cal.3d at p. 256.) Vella explained that the propriety of applying collateral estoppel to an underlying unlawful detainer judgment brought pursuant to section 1161a became doubtful only if the claims in the second action involved activities or alleged wrongdoing not "directly connected" with the ...

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