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James R. Arabia v. Bac Home Loans Servicing

August 13, 2012

JAMES R. ARABIA, PLAINTIFF, CROSS-DEFENDANT AND APPELLANT,
v.
BAC HOME LOANS SERVICING, L.P., DEFENDANT, CROSS-COMPLAINANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of San Diego County, Joel M. Pressman, Judge. (Super. Ct. No. 37-2010-00093289- CU BC CTL)

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

CERTIFIED FOR PUBLICATION

Affirmed in part, reversed in part, remanded with directions.

In this case, we are asked to determine if Code of Civil Procedure*fn1 section 725a prohibits a loan servicer from filing a judicial foreclosure action in its name. We conclude it does not so long as the right to foreclose has been assigned to the loan servicer.

James R. Arabia refinanced his home with a mortgage loan secured by a deed of trust recorded against his home. Arabia experienced financial difficulties and stopped making his mortgage payments. Non-judicial foreclosure proceedings were commenced and suspended numerous times. Arabia brought suit against the loan servicer, BAC Home Loans Servicing, L.P. (BAC), for claims arising out of the non-judicial foreclosure attempts. In response, BAC filed a cross-complaint for judicial foreclosure.

The court granted BAC's motion for summary judgment on the judicial foreclosure cross-complaint and entered a decree authorizing foreclosure. Arabia appeals, contending that section 725a does not permit a loan servicer to bring a judicial foreclosure action in its name. He also claims the foreclosure decree includes improper provisions, and the court was required to add a junior lienholder as a cross-defendant in the judicial foreclosure action.

Because we conclude section 725a does not prohibit a loan servicer from initiating a judicial foreclosure action, we reject Arabia's challenge to the court's granting of BAC's motion for summary judgment. In addition, except for determining the judicial foreclosure decree improperly ordered Arabia to pay BAC rent, we otherwise affirm the judgment.

FACTUAL AND PROCEDURAL HISTORY

Arabia owns a home (the property) in San Diego. On or about September 12, 2005, Arabia refinanced the property with a $2,846,250 mortgage loan (the First Loan) from Countrywide Home Loans, Inc. doing business as America's Wholesale Lender (Countrywide). The First Loan was evidenced by a promissory note signed by Arabia in favor of Countrywide and secured by a deed of trust recorded against the property. The deed of trust included a clause authorizing Countrywide to foreclose on it if Arabia failed to make his monthly mortgage loan payments.

On or about September 12, 2005, Countrywide provided a home equity line of credit (HELOC) to Arabia in the amount of $1,035,000. It was evidenced by a home equity credit agreement and secured by a deed of trust recorded against the property. The HELOC was junior in priority to the First Loan.

On February 1, 2006, BAC, Countrywide, the Bank of New York Mellon formerly known as the Bank of New York (BONY), CWMBS, Inc., and other entities entered into a Pooling and Servicing Agreement (PSA). Under the PSA, Countrywide agreed to "sell[], transfer[], assign[], set[] over and otherwise convey[], without recourse, all of its respective right, title, and interest," in certain mortgage loans to CWMBS. CWMBS agreed to sell, transfer, assign, set over, and otherwise convey all rights, title, and interest in those same mortgage loans to BONY as trustee for the certificate holders of CWMBS, Inc., CHL Mortgage Pass-Through Trust 2006-TM 1 Mortgage Pass-Through Certificates, Series 2006-TMI (the Trust). The PSA further decreed that BAC would be the master servicer of all the loans in the Trust and had the authority to foreclose on deeds of trust securing loans that were in default.*fn2

In 2007, Arabia experienced financial difficulties and was unable to make his mortgage loan payment on the First Loan in November 2007. Indeed, Arabia has not made a payment on the First Loan since October 2007.

On February 24, 2010, Countrywide, through its nominee Mortgage Electronic Registration Systems, Inc. (MERS), transferred its interest in the First Loan and its deed of trust to BONY as trustee for the Trust.

In June 2010, Arabia filed a first amended complaint naming BAC and others as defendants. The first amended complaint alleges non-judicial foreclosure irregularities, breach of the covenant of good faith and fair dealing, intentional infliction of emotional distress, and promissory estoppel. The first amended complaint details the defendants' alleged improper non-judicial foreclosure efforts and Arabia's attempts to negotiate a resolution to his mortgage loan woes over a two-year period. As part of this suit, Arabia is seeking, among other things, damages for the property's lost equity.

In response to the first amended complaint, BAC filed a cross-complaint for judicial foreclosure. On April 14, 2011, prior to Arabia answering the cross-complaint, BAC filed an amended cross-complaint for judicial foreclosure. The amended cross-complaint added CWMBS and Countrywide as cross-complainants.

BAC subsequently moved for summary judgment on its cross-complaint. The court denied the motion because it believed BAC did not address the existence of junior lienholders and whether they had notice of the suit. The court also ruled BAC had not shown the First Loan was a recourse loan. At oral argument, the court explained its denial was without prejudice and encouraged BAC to "clean up" the motion and refile it.

Addressing the court's concerns, BAC filed a subsequent motion for summary judgment. Arabia filed an opposition, but did not address the issue of BAC failing to name the junior lienholder (Countrywide) as a cross-defendant.

In a thorough five and one-half page order, the court granted the motion. The court then entered a decree of judicial foreclosure. Arabia timely appealed.

DISCUSSION

I

SECTION 725A DOES NOT PROHIBIT A LOAN SERVICER FROM INITIATING A JUDICIAL FORECLOSURE ACTION IN ITS NAME

A. Standard of Review and Arabia's Contentions

We review summary judgment de novo. (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 767.) We also review de novo the interpretation of any statutes. (California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 699.)

Here, Arabia's primary attack on the granting of BAC's motion for summary judgment is that section 725a does not allow a loan servicer to initiate a judicial foreclosure action in its name. Instead, he argues that section 725a only permits the beneficiary or the trustee under a deed of trust to bring a judicial foreclosure action. Because BAC is the loan servicer, Arabia argues that it may not commence a judicial foreclosure action in its name under section 725a, and the court's granting of the motion for summary judgment was thus incorrect.

B. Interpretation of Section 725a

In this appeal, we must interpret section 725a.*fn3 In construing statutes, we determine and effectuate legislative intent. (People v. Woodhead (1987) 43 Cal.3d 1002, 1007; People ex rel. Younger v. Superior Court (1976) 16 Cal.3d 30, 40.) To ascertain intent, we look first to the words of the statutes. (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386-1387; Woodhead, supra, at p. 1007.) "Words must be construed in context, and statutes must be harmonized, both internally and with each other, to the extent possible." (California Mfrs. Assn. v. Public Utilities Com. (1979) 24 Cal.3d 836, 844.)

Section 725a provides:

"The beneficiary or trustee named in a deed of trust or mortgagee named in a mortgage with power of sale upon real property or any interest therein to secure a debt or other obligation, or if there be a successor or successors in interest of such beneficiary, trustee or mortgagee, then such successor or successors in interest, shall have the right to bring suit to foreclose the same in the manner and subject to the provisions, rights and remedies relating to the foreclosure of a mortgage upon such property."

Arabia contends section 725a specifically allows only the beneficiary or the trustee to initiate a judicial foreclosure action. We see no such restriction in the applicable text. The statute states that the beneficiary, trustee, mortgagee, or the successor in interest to any of these three entities has the right to file suit for judicial foreclosure. It does not explicitly prevent a beneficiary or trustee from contracting its right to do so to a loan servicer.

Arabia, however, argues that if the Legislature had intended to allow an agent of the beneficiary, like a loan servicer, to initiate a foreclosure action in the agent's name, it would have included such language in section 725a. To support his contention, Arabia points to the Legislature's inclusion of the term "agent" in Civil Code section 2924, subdivision (a)(1), which states in pertinent part: "The trustee, mortgagee, or beneficiary, or any of their authorized agents shall first file for record, in the office of the recorder of each county wherein the mortgaged or trust property or some part or parcel thereof is situated, a notice of default."

As a threshold matter, we note that Civil Code section 2924, subdivision (a)(1) states who may initiate a non-judicial foreclosure. (See Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1155.) It does not apply to judicial foreclosures. For this reason alone, Civil Code section 2924, subdivision (a)(1) is not particularly helpful in interpreting section 725a. That said, we are mindful that section 725a and Civil Code section 2924, subdivision (a)(1) are part of "an elaborate and interrelated set of foreclosure and antideficiency statutes relating to the enforcement of obligations secured by interests in real property." (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1236 (Alliance).) Under this statutory scheme, there is only " 'one form of action' " for the recovery of any debt or the enforcement of any right secured by a mortgage or deed of trust. (Ibid; see § 726, subd. (a).) The action is foreclosure, which may be either judicial or non-judicial. (§§ 725a, 726, subd. (a).) However, the differences between non-judicial and judicial foreclosures make clear that the Legislature decided that a non-judicial foreclosure requires a more comprehensive statutory scheme than a judicial foreclosure because the latter involves significant judicial involvement.

"In a non-judicial foreclosure, also known as a 'trustee's sale,' the trustee exercises the power of sale given by the deed of trust." (Alliance, supra, 10 Cal.4th at p. 1236.) "Non-judicial foreclosure is less expensive and more quickly concluded than judicial foreclosure, since there is no oversight by a court, '[n]either appraisal nor judicial ...


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