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Deutsche Bank National Trust Company et al v. Mary Mcgurk

May 22, 2012

DEUTSCHE BANK NATIONAL TRUST COMPANY ET AL., PLAINTIFF AND APPELLANT,
v.
MARY MCGURK, DEFENDANT AND RESPONDENT.



(Los Angeles County Super. Ct. No. BC419796) APPEAL from a judgment of the Superior Court of Los Angeles County, Rolf M. Treu, Judge. Judgment is reversed and remanded.

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

CERTIFIED FOR PUBLICATION

We are here concerned with the effect of a quiet title judgment on the assignee of the interest of an entity whose interest was not litigated in the quiet title action. The quiet title plaintiff, Mary McGurk, had named New Century Mortgage Corporation (New Century) in her quiet title action, as New Century held a deed of trust on McGurk's property. McGurk had also recorded a lis pendens shortly after filing her quiet title complaint. During the course of the action, New Century assigned the deed of trust to Deutsche Bank National Trust Company, as Indenture Trustee for New Century Home Equity Loan Trust 2005-4 (Deutsche Bank), but the assignment was not recorded, and McGurk was unaware of it. Thereafter, McGurk dismissed New Century from her quiet title action, as New Century was then in bankruptcy, and McGurk chose to pursue New Century in that forum, rather than seek relief from the automatic stay. McGurk thereafter obtained a judgment purporting to quiet title in her in fee simple. Subsequently, Deutsche Bank recorded its assignment, and brought the instant declaratory relief action, seeking a determination of the validity of the assigned deed of trust.

Given these factual circumstances, we hold that, as the interest of New Century was not resolved in the quiet title action, its assignee, Deutsche Bank, is not bound by the quiet title judgment. We reject McGurk's argument that Deutsche Bank is bound by the judgment because it obtained the deed of trust after her lis pendens was recorded. As a matter of law, her judgment simply did not (and could not) address the validity of the New Century deed of trust. We will therefore reverse the trial court's judgment in favor of McGurk, and remand for an actual determination of the validity of the assigned trust deed interest.

FACTUAL AND PROCEDURAL BACKGROUND

The complex factual and procedural background which led to the instant appeal is best understood in chronological order. We will ultimately be concerned with the validity of a deed of trust against a piece of real property on which Mary McGurk lives. The deed of trust is currently held by Deutsche Bank. As will become clear, Deutsche Bank's interest arises as the assignee of New Century.

In 2005, McGurk, who had lost her job, had fallen behind on her mortgage payments (to a third party not a party to this action), and faced foreclosure. Unfortunately, McGurk fell victim to a fraud ring which preyed on individuals who faced foreclosure while nonetheless possessing substantial equity in their homes. Relying on the faulty advice of these individuals,*fn1 McGurk was convinced to deed her property to a man named Jonathan Kim, who would then lease the property back to McGurk, with an option to buy it back after one year. On July 13, 2005, Kim, who had better credit than McGurk, obtained a loan on the property from New Century, secured by a deed of trust, in the amount of $369,000. Of that amount, $162,896.25 was used to satisfy McGurk's then-existing mortgage. The remaining proceeds of the loan (amounting to McGurk's equity in her home) were to be used as a fund from which McGurk could pay the lease payments to Kim (which were equal to Kim's monthly obligation on the New Century note), while she attempted to improve her financial situation. However, the individuals who organized the transaction took the bulk of the excess loan proceeds for themselves. Thus, although McGurk's original mortgage was paid off, she ended up: (1) losing title to her home; (2) losing all of the equity in her home; and (3) being left with monthly lease payments to Kim much higher than her original mortgage payments, with no means of making the payments.*fn2

On May 16, 2006, McGurk brought suit against Kim, the individuals and companies who had defrauded her, and New Century.*fn3 The parties refer to this action as McGurk I. Although McGurk alleged numerous causes of action, key for our purposes is her quiet title action against all defendants, including New Century, who claimed any interest in her home as of July 12, 2005.*fn4 McGurk recorded a lis pendens on the property on May 23, 2006.

On June 27, 2006, New Century filed a cross-complaint against McGurk, alleging that it was a bona fide encumbrancer for value, and its deed of trust was valid. In the alternative, New Century argued that it was entitled to an equitable lien in the amount of the portion of its loan which was used to pay off McGurk's initial mortgage.

On April 2, 2007, New Century filed a voluntary petition for bankruptcy under Chapter 11. On April 11, 2007, New Century filed a notice of automatic stay in McGurk I. On February 13, 2008, New Century dismissed its cross-complaint against McGurk without prejudice.

On March 4, 2008, New Century assigned the note and deed of trust to Deutsche Bank.*fn5 However, neither New Century nor Deutsche Bank informed McGurk of the change in ownership of the deed of trust.*fn6 Nor did Deutsche Bank immediately record the assignment of the deed of trust in its favor.

McGurk continued proceeding against the McGurk I defendants who had defrauded her. By mid-May 2008, McGurk had obtained defaults against these defendants. She had also obtained a stipulation from Kim, in which he agreed that judgment could be entered against him in the amount of $45,000, and the grant deed in his favor would be declared void ab initio. New Century was the only remaining defendant, and McGurk was prohibited from pursuing New Century because of the automatic stay. McGurk had no knowledge, at this time, that New Century no longer possessed any interest in the deed of trust.

Because of the automatic stay, and for no other reason, McGurk voluntarily dismissed New Century without prejudice, intending to pursue New Century in bankruptcy court.*fn7 McGurk did not, instead, seek relief from the automatic stay. The dismissal was entered on May 9, 2008.

On May 12, 2008, McGurk filed a notice of case status indicating that she had obtained the defaults of five defendants, obtained stipulations for judgment from two more, and requested dismissal of the final two (including New Century). McGurk stated, "what remains is for the court to enter judgment on the defaults that have been entered, and to quiet title in" McGurk.

On May 15, 2008, the court entered judgment in favor of McGurk on the stipulation she had entered into with Kim; this had the effect of canceling McGurk's grant deed in favor of Kim as void ab initio. On May 19, 2008, the court entered default judgment against the individuals and companies which had defrauded McGurk, in the amount of $705,000, plus interest, costs, and attorney fees. On May 19, 2008, the court entered judgment, following a hearing, quieting title in McGurk's favor. The judgment simply stated, "Title is quieted in Mary McGurk, the sole owner of title in fee simple of [the property]." McGurk recorded the judgment on May 22, 2008.

On August 1, 2008, a liquidating trust was created in New Century's bankruptcy, and all of New Century's assets were distributed to the liquidating trust. On August 19, 2008, Deutsche Bank recorded the March ...


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