Bankruptcy No. 10-17456-MM13
The opinion of the court was delivered by: M. James LorenzUnited States District Court Judge
ORDER REVERSING BANKRUPTCY U.S. COURT DECISION AND REMANDING FOR FURTHER PROCEEDINGS
Pending before the Court is Appellant U.S. Bank National Association ("U.S. Bank")'s appeal of the bankruptcy court's decision denying its motion for relief from the automatic stay in Appellee Eleazar Salazar's Chapter 13 bankruptcy case. The Court found this appeal suitable for determination on the papers submitted and without oral argument. See Civ. L.R. 7.1(d.1). (Doc. 26.) For the following reasons, the Court REVERSES the bankruptcy court's decision REMANDS the case to the bankruptcy court for further proceedings.
Salazar owned real property at 1268 Emerald Way, Calexico, California. In October 2005, Salazar obtained a loan from Accredited Home Lenders, Inc. ("Accredited"). He executed a promissory note payable to Accredited. To secure the loan, Salazar also executed a deed of trust ("DOT") that named him as "Borrower," Accredited as "Lender," Chicago Title Company as trustee, and Mortgage Electronic Registration System, Inc. ("MERS") as beneficiary. (DOT 1--2 [Doc. 4-2].) In the DOT, Salazar granted title to his property to the trustee, in trust, with the power of sale. (Id. at 3.) Moreover, the DOT stated that "MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument." (Id.) Accredited endorsed Salazar's promissory note in blank. Then the endorsed note was transferred to U.S. Bank as trustee of the C-BASS 2006-CB2 Trust.
B. Foreclosure Proceedings
After Salazar defaulted under the loan, foreclosure proceedings were instituted. On May 7, 2009, a notice of default and election to sell under Salazar's DOT was recorded. (ROA-II 55--56 [Doc. 4-2].) The notice of default advised Salazar to contact Litton Loan Servicing LP, in care of Quality Loan Service Corporation ("Quality"), to arrange for payment to stop the foreclosure. On June 18, 2009, MERS executed a substitution of trustee, naming Quality as the new trustee. (Id. at 88--90.) Then, on August 14, 2009, a notice of trustee's sale was recorded.
U.S. Bank purchased the property at the trustee's sale, which was held on December 7, 2009. On December 14, 2009, a trustee's deed conveying the property to U.S. Bank was recorded. (ROA-II 123--24.) After it posted and served a three-day notice to quit on Salazar,
U.S. Bank commenced an unlawful-detainer action in the Imperial County Superior Court. (ROA-I 9--23 [Doc. 4-1].) But before the unlawful-detainer action could proceed to trial, Salazar filed his Chapter 13 petition in the bankruptcy court on September 30, 2010. (ROA-III 106--17.)
C. Bankruptcy Court Decision
On October 26, 2010, U.S. Bank filed a motion in the bankruptcy court for relief from the automatic stay in order to prosecute its unlawful-detainer action against Salazar in state court. Salazar opposed. Following oral argument, the bankruptcy court denied U.S. Bank's motion, finding that Salazar "demonstrated a prima facie case that the foreclosure sale was void . . . [and] thus has a significant property interest entitled to protection by the automatic stay." In re Salazar, 448 B.R. 814, 817 (Bankr. S.D. Cal. 2011).*fn2
To reach that conclusion, the bankruptcy court determined that U.S. Bank had to meet both requirements of California Civil Code § 2932.5 for the foreclosure to be valid. Id. at 820. First, "U.S. Bank had to be entitled to payment of the secured debt," and, second, "U.S. Bank's status as foreclosing beneficiary [must] appear before the sale in the public record title for the Property." Id. The court also rejected the argument that § 2932.5 only applied to mortgages, finding that the historical distinction between deeds of trust and mortgages have been determined to be ...