(Santa Clara County Super. Ct. No. 1-09-CV157852) Trial Court: Santa Clara County Superior Court Trial Judge: Hon. Kevin E. McKenney
The opinion of the court was delivered by: Elia, J.
CERTIFIED FOR PUBLICATION
Plaintiff Stephen Debrunner sought a declaratory judgment and quiet title to property on which non-judicial foreclosure proceedings had been initiated by respondents Deutsche Bank National Trust Company (Deutsche Bank), its loan servicer, and its foreclosure trustee. The superior court sustained respondents' demurrer to the first amended complaint without leave to amend. Plaintiff appeals, contending that an assignment of a deed of trust is of no legal effect without the actual transfer of the corresponding promissory note and therefore cannot support non-judicial foreclosure by the assignee. Plaintiff further contends that the notice of default in this case was defective for inadequately identifying Deutsche Bank as the beneficiary and prematurely naming the trustee. We will affirm the judgment.
Because this appeal arises from the sustaining of a demurrer, we summarize the underlying facts as they are stated in the operative pleading, the first amended complaint. Toward this end "we accept as true the properly pleaded material factual allegations of the complaint, together with facts that may properly be judicially noticed." (Crowley v. Katleman (1994) 8 Cal.4th 666, 672; Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.)
Plaintiff alleged that he was a private investor who, along with others, extended a $675,000 loan in March 2006 to Barbara Chiu and Shimin Xu, secured by a deed of trust on a home in Los Altos. Chiu executed a promissory note and second deed of trust in favor of plaintiff and his co-investors.
At this time Chiu was already a trustor on a first deed of trust on the property, having borrowed $975,000 from Quick Loan Funding, Inc. (Quick Loan) in June 2004. The trustee named on that deed of trust was Chicago Title Company. The following month Quick Loan assigned the deed of trust and Chiu's promissory note to Option One Mortgage Corporation (Option One), which shortly thereafter assigned both interests to FV-1, Inc.
The final assignment of the deed of trust was from FV-1 to Deutsche Bank, with respondent Saxon Mortgage Services, Inc. (Saxon) acting as "Attorney in Fact." This document bore three dates: September 2, 2008, when the assignment was originally executed; September 21, 2009, when it was notarized; and January 5, 2010, when it was recorded.
In January 2008, plaintiff and his co-investors filed a notice of default, and in April they scheduled a trustee's sale for the following month. In June Chiu's business entity filed for Chapter 11 bankruptcy protection. The bankruptcy court thereafter granted plaintiff and the co-investors' motion for relief from the bankruptcy stay, and in March 2009 they foreclosed and obtained a Trustee's Deed Upon Sale for the property.
In August 2008, however, well before the sale was completed, Saxon, the servicer of the first-position loan, filed a Notice of Default on the property. Because of the bankruptcy proceeding, however, the notice was rescinded. In July 2009 Deutsche Bank moved for relief from the bankruptcy stay in order to file a new notice of default. That motion was taken off calendar when the bankruptcy matter was closed in August 2009.
On September 15, 2009 the foreclosure trustee, Old Republic Default Management Services (Old Republic), recorded a new notice of default on the property. In the accompanying Fair Debt Collection Practices Act Notice, Old Republic named Deutsche Bank as the creditor and Saxon as its "attorney-in-fact." The Notice informed the debtor that payment to stop the foreclosure could be made to Saxon, and it provided Saxon's address and telephone number. On January 5, 2010, the same day the assignment from FV-1 to Deutsche Bank was recorded, the county recorded a "Substitution of Trustee" from Chicago Title Company to Old Republic. This document had been signed and notarized on September 2, 2008, by Saxon on behalf of Deutsche Bank.
Plaintiff commenced this action in November 2009 to stop the impending foreclosure, naming Deutsche Bank, Saxon, and Old Republic. In his first amended complaint in April 2010, he specifically sought a declaration of multiple facts-- in particular, that the defendants had no right to foreclose because Deutsche Bank did not have physical possession of or ownership rights to the original promissory note. Plaintiff further sought to quiet title to the property and remove the first deed of trust in favor of Quick Loan.
Deutsche Bank and Saxon demurred on multiple grounds, primarily the absence of facts indicating a violation of non-judicial foreclosure procedures. Respondents specifically argued, for instance, that possession of the original note was not required under the applicable statutes, Civil Code section 2924 et seq.*fn1 In response, plaintiff maintained that any assignment of the deed of trust was immaterial because a deed of trust "cannot be transferred independently" of the promissory note, which must be "properly assigned" and attached. According to plaintiff, "[a] deed of trust standing alone is a nullity," and thus cannot provide authority for a lender to foreclose. Plaintiff relied on several sections of the Commercial Code pertaining to negotiation, transfer, endorsement, and enforcement of negotiable instruments. (See Comm. Code, §§ 3104, 3109, 3201-3205, 3301, 9313.)
Although he had alleged Old Republic to be the foreclosure trustee, plaintiff further argued in opposition to the demurrer that neither Saxon nor Old Republic had any right to initiate foreclosure because there was no proper "chain of assignment" from Option One to Saxon or to Old Republic, as required under section 2934a. He noted that Quick Loan had assigned the deed of trust, but not the note, to Option One, which thereafter assigned the deed of trust to FV-1 and eventually to Deutsche Bank. These assignments, he maintained, were "of no value" and invalid because they were not accompanied by assignment of the promissory note. In other words, the deed of trust and the note "must remain married and joined to each other for a secured debt to exist. ...