U.S. Bank National Association v. Naifeh

         [CERTIFIED FOR PARTIAL PUBLICATION^[*]]

         As modified Aug. 17, 2016.

          Superior Court of San Francisco City and County, No. CGC-11-509805, Marla J. Miller, Judge.

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         COUNSEL

         Sheik Law, Mani Sheik; Murchison & Cumming, John Podesta and Jennifer K. Letulle for Defendant and Appellant.

         Parker Ibrahim & Berg, John M. Sorich, Jenny L. Merris, Heather E. Stern; Alvarado & Smith and Theodore E. Bacon for Plaintiff and Respondent.

         Opinion by Needham, J., with Jones, P. J., and Bruiniers, J., concurring.

          OPINION

          [205 Cal.Rptr.3d 123] NEEDHAM, J.

          Stephanie Naifeh, Stephen Easterly, and Sam Segall appeal from a judgment entered against them for cancellation of written instruments. (Civ. Code, § 3412.) U.S. Bank National Association (U.S. Bank or respondent) alleged that Naifeh and Segall had fraudulently signed and recorded numerous documents, which purported to divest respondent of title to the real property it had obtained through the foreclosure process after Naifeh defaulted on her loan. Appellants, on the other hand, argued that Naifeh had rescinded the loan transaction pursuant to the Truth in Lending Act (TILA; 15 U.S.C. § 1601 et seq.), the relevant security interest was therefore void, and for this and other reasons respondent had no interest in the property.

         Appellants contend (1) the trial court erred in ruling that Naifeh's notice of rescission was insufficient to rescind the loan transaction; (2) respondent should not have been allowed to pursue its cancellation of instruments claims, because even if the court properly allowed an amendment at trial to substitute respondent for its predecessor in interest, respondent omitted a quiet title

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claim from its amended pleading; (3) respondent did not have standing to seek cancellation of the instruments because it had no interest in the real property, due to the absence of any timely lawful assignment; and (4) the court made a number of erroneous procedural rulings.

         Because of a decision issued by the United States Supreme Court after the trial court's ruling in this case, we will vacate the judgment and remand for further proceedings, including the adjudication of appellants' affirmative defense of rescission.

         In the portion of the opinion certified for publication, we conclude that a borrower may rescind the loan transaction under the TILA without filing a lawsuit, but when the rescission is challenged in litigation, the court has authority to decide whether the rescission notice is timely and whether the procedure set forth in the TILA should be modified in light of the facts and circumstances of the case. In the portion of the opinion not certified for publication, we conclude that appellants' remaining arguments lack merit.

         I. FACTS AND PROCEDURAL HISTORY

         A. The Loan and Foreclosure

         In March 2007, Naifeh and Dusan Ristic obtained a $500,000 residential loan (Loan) from Washington Mutual Bank, FA (WaMu), in connection with certain real property in San Francisco (Property). The note was secured by a deed of trust recorded against the Property on April 6, 2007. The deed of trust identified WaMu as the lender and beneficiary, California Reconveyance Company (CRC) as the trustee, and Naifeh and Ristic as the borrowers.

         Before the loan closed, WaMu gave Naifeh and Ristic what purported to be a disclosure of the loan terms as required by the TILA. (See 15 U.S.C. § 1635.) As discussed post, Naifeh contends the TILA disclosures were deficient.

         1. Chase Becomes the Loan Servicer

         On or about May 1, 2007, WaMu entered into a " Pooling and Servicing Agreement" pursuant to which the Loan (along with other loans) was securitized and, at some point, placed into the " WaMu Mortgage Pass-Through Certificate Series 2007-HY-6 Trust." The pooling and servicing agreement defined WaMu as the servicer of the trust, with authority to foreclose.

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         By September 25, 2008, the Federal Deposit Insurance Corporation (FDIC) [205 Cal.Rptr.3d 124] placed WaMu into receivership. On or about that date, JPMorganChase, National Association (Chase) acquired certain assets and liabilities of WaMu from the FDIC, as receiver for WaMu, including WaMu's interest in the Loan. Respondent contends that Chase became the servicer of the Loan, and Chase possessed the records related to the Loan and the original note.

         2. Assignment to Bank of America, NA, as Trustee of the HY06 Trust

         An " Assignment of Deed of Trust" recorded on March 31, 2009, states that Chase, as successor in interest to WaMu, assigned " all beneficial interest" under the deed of trust to " Bank of America, National Association as successor by merger to 'LaSalle Bank NA as trustee for WaMu Mortgage Pass-Through Certificates Series 2007-HY06 Trust.'" (BofA).

         3. Naifeh's and Ristic's Default

         Meanwhile, Naifeh defaulted on the Loan in 2008 by failing to make payments. A " Notice of Default and Election to Sell Under Deed of Trust" was recorded by trustee CRC on March 31, 2009.

         In 2008 and 2009, Naifeh sought a modification of the Loan. WaMu denied the modification request. Chase purportedly offered a modification, but no modification was ultimately agreed upon.

         On July 10, 2009, a " Notice of Trustee's Sale" was recorded, stating that the Property would be sold at a public auction later that month. The trustee's sale was postponed to May 2010.

         4. Naifeh's Notice of Rescission

         After the notice of trustee's sale, Naifeh sent a letter to CRC on July 18, 2009, with copies to the " CFO" of WaMu and the " CFO" of Chase, notifying them that she and Ristic were rescinding the loan pursuant to " Regulation Z" (12 C.F.R. § 226.33(b) (2016)) based on certain deficiencies in the TILA disclosures. A similar letter, dated July 20, 2009, attached a rescission form signed by Naifeh and Ristic. Naifeh contends that WaMu, Chase, and CRC received the rescission notice but took no action.

         On December 18, 2009, Naifeh sent another rescission notice to WaMu, Chase, and CRC, purportedly pursuant to the TILA. That same month, she sent a written request to CRC, WaMu, Chase, and others for verification of the debt.

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         In January 2010, Naifeh learned that the note and deed of trust had purportedly been transferred from Chase to BofA. According to Naifeh, she sent " Bank of America" copies of her rescission notices and debt verification request. The bank acknowledged receipt of the notices and asked Naifeh for the property address, account number, and other identifying information, but then told her it could not find any records related to the property other than old mortgages that had already been paid off.

         Naifeh sent follow-up letters to the " CFO" of " Bank of America, NA," as well as to WaMu, Chase and CRC on January 20, 2010, January 27, 2010, and February 2, 2010. On March 24, 2010, she sent further correspondence to Chase, CRC, and Chase's attorneys, inquiring about a variety of matters including the location and validity of the note and deed of trust, and proposing to " settle and close this matter."

         5. Naifeh's Recording of False Documents

         Beginning in April 2010--the month before the scheduled foreclosure sale of the Property--Naifeh and a friend (appellant Segall) caused several documents to be recorded with the county recorder, by which Naifeh purported to show she owed [205 Cal.Rptr.3d 125] nothing on the Loan and was released from the mortgage debt.^[1]

         Specifically, on April 5, 2010, Naifeh recorded a " Substitution of Trustee," which she signed with the false representation that she was an " authorized representative" of CRC. The document purported to substitute Segall as trustee under the deed of trust, in place of CRC.

         On April 20, 2010, Naifeh and Segall recorded a " Modification of Deed of Trust," which Segall signed as " Authorized Agent, Trustee" and Naifeh signed as " Trustor, Authorized Representative." The Modification of Deed of Trust, falsely purporting to be an agreement between Naifeh and Chase, stated that the deed of trust had " erroneously set forth the amount of indebtedness secured thereby as being $500,000," and modified the deed of trust " to correctly reflect the amount of indebtedness secured thereby to be zero dollars ($0.00) and to reflect a status of 'paid as agreed.'" ^[2]

         On April 26, 2010, Naifeh recorded a " Full Reconveyance," which Segall falsely executed as " Trustee/Authorized Agent," and which purported to reconvey the deed of trust and ...