Archive for July, 2010

Judgment in Unlawful Detainer Validates Foreclosure Sale

Sunday, July 25th, 2010

The overlap between real property law and trust law reaches back centuries, as early trust law was concerned with the conveyancing of real property.  Similarly, Prof. Maitland in his famous (and tremendously readable) “The Forms of Action at Common Law” (1909) teaches that eviction law, known as “unlawful detainer,” also reaches back hundreds of years.

Here is an important rule, arising from the wave of foreclosures which we are now witnessing – a judgment in a simple unlawful detainer lawsuit has the effect of validating, and thereby eliminating any objections to, a prior foreclosure by a lender.

Grand Canyon North Rim

To start, an unlawful detainer action is concerned with the narrow question of the right to “possession” of real property.  The law holds that almost all other issues cannot be raised in the summary proceeding known as unlawful detainer.

Yet, a federal case from last fall reminds us that the property owner has the right to contest the validity of a foreclosure sale in defense to an action for unlawful detainer.  In Nyugen v. LaSalle Bank, C.D. Cal. Case No. 09-0881 (Order entered October 13, 2009), the court held as follows:

“Defendant LaSalle brought suit against Plaintiffs in Orange County Superior Court for unlawful detainer following the foreclosure sale.  There, Nguyen (Plaintiff herein) urged that LaSalle’s foreclosure was improper and alleged multiple affirmative defenses. The state court entered judgment in favor of LaSalle, finding that LaSalle’s evidence established all elements of its claim”

“Plaintiffs urge that by alleging fraud, undue influence, and breach of covenant of good faith and fair dealing, that res judicata does not bar their claims. However, as discussed below, Plaintiffs’ allegations not only fail herein, but were also rejected in the unlawful detainer proceeding.”

Held the court, “Although most issues unrelated to possession can be raised in a subsequent action between the parties, the issue of the irregularity of the foreclosure or execution sale is barred by a judgment in an unlawful detainer action.”

That is a powerful statement of law.  And correct, also.  The federal court cited to Freeze v. Salot (1954) 122 Cal.App.2d 561, which held as follows:

“The municipal court had jurisdiction of the action between Aguilar and plaintiff.  We must conclude from the allegations with respect to the averment of the complaint in the municipal court action that it was a proceeding in unlawful detainer.”

OK, so we know the court is reviewing the judgment in an unlawful detainer action.  Note that the judgment was entered by default, which means that the defendant did not appear in the action, and did not contest the claim of unlawful detainer.

Mt Whitney

The court continued.  “The facts [pled in the new lawsuit alleged] that plaintiff was not in default under the deed of trust, that the note had been fully paid on November 6, 1948, and that she had no notice that the property was to be sold, were available to her as a defense in that proceeding.  The question is whether the judgment of the municipal court [in the eviction lawsuit] is res judicata in this action.”

Reviewing the decision in Seidell v. Anglo-California Trust Co., 55 Cal.App.2d 913, the court ruled in favor of the lender.  Stated the court, Seidell “was a suit to set aside a trustee’s deed to realty for alleged fraud and irregularities in the foreclosure proceeding. The question on appeal was whether a judgment which was rendered in a former proceeding in unlawful detainer was res judicata. The purchaser at the trustee’s sale had conveyed the property prior to the proceeding in unlawful detainer.

The judgment in the unlawful detainer suit bars the appellants from now contending the trustees’ deed to the real property was void on account of the alleged irregularities of procedure in the foreclosure of the deed of trust.”

“In this case the challenged unlawful detainer judgment determined issues tendered by these appellants in their answer which constituted legal defenses of alleged specific violations of the statute in failing to give the notice of sale required by section 2924 of the Civil Code, lack of consideration for the note secured by the trust deed, and other asserted defects going to the validity of the trust deed and note secured thereby, and to the proceedings on the sale of that property under the provisions of the deed.”

All of those issues of law, as distinguished from equity, affecting the legality of the note, deed of trust and the sale were properly determined against the defendants in that unlawful detention suit.”

To drive the nail home, the court held that “Plaintiff’s failure to appear in the municipal court action was a confession that all the material facts alleged in the complaint in that action were true.  A judgment by default is a complete adjudication of all the right of the parties embraced in the prayer of the complaint and stands on the same footing as a judgment after answer and trial with respect to issues tendered by the complaint.”

A powerful lesson, 50 years on.  A homeowner must contest the validity of a foreclosure in a subsequent action for unlawful detainer whereby the lender seeks a judgment for possession of the real property.  Failure to do so waives all defenses, both state and federal, relating to irregularities regarding the foreclosure.

Deed to Estate Planning Trust – Struggling for the Right Result

Friday, July 16th, 2010

A recent decision involving a deed to an estate planning trust achieved the correct result, but with unnecessary effort.

The facts in Luna v. Brownell (June 15, 2010) 2010 DJDAR 8811 were simple.

  • “On August 13, 2006, Al executed a quitclaim deed transferring his interest in the Property as an individual to himself as trustee of the Trust.”
  • “On August 29, 2006, Al executed the declaration of trust for the Trust.  The declaration of trust stated that Al was the trustee.”
  • “On September 8, 2006, the grant deeds transferring plaintiffs’ interest in the Property to Al as trustee of the Trust were recorded.”
  • “Al died on September 19, 2006.”

The hitch in the analysis arises because the court implicitly considered Al’s revocable estate planning trust to be different from Al.  It is not:  the trust is not different from a Will, at least during Al’s lifetime.

The court presented its discussion as follows. “A deed does not transfer title to the grantee until it has been legally delivered.  Delivery is a question of intent.  A valid delivery of a deed depends upon whether the grantor intended that it should be presently operative.”

The court starts pushing in the wrong direction from the beginning.  This is should be treated as a wills question, not as a conveyancing question.

Big Sur State Park

“In addition, acceptance by the grantee is necessary to make a delivery effective and the deed operative.  Whether the deed was accepted by the grantee so as to complete a transfer of title to him is likewise a question of fact for the trial court.”

The court continued.  “On August 8, 2006, after understanding that Al wanted his property in his own name for purposes of creating a trust, the plaintiffs did not dispute his ownership . . . The [real] question before this court therefore is whether the quitclaim deed executed by Al on August 13, 2006, transferring the Property from Al as an individual to Al as trustee of the Trust was void because the Trust did not exist on the date the deed was executed.”

Following decisions from other jurisdictions, the court held the conveyance was effective.  For example, in John Davis & Co. v. Cedar Glen # Four, Inc. (Wash. 1969) 450 P.2d 166, the court considered the validity of a quitclaim deed transferring real property to a corporation.  Held the court, “A deed to a corporation made prior to its organization, is valid between the parties.  Title passes when the corporation is legally incorporated.  This is particularly true as against one who does not hold superior title when the corporation goes into possession under the deed.”

Similarly, in Heartland v. McIntosh Racing Stable (W.Va. 2006) 632 S.E.2d 296 the court held that “A deed drawn and executed in anticipation of the creation of the grantee as a corporation, limited liability company, or other legal entity entitled to hold real property is not invalidated because the grantee entity had not been established as required by law at the time of such execution, if the entity is in fact created thereafter in compliance with the requirements of law and the executed deed is properly delivered to the entity, the grantee, after its creation.”


Both are solid analyses under corporate law.  What the recent California court should have looked at in Al’s case was the following:

(1)  Did Al want his property to be handled in a probate?

A.  He did not.  He wanted to provide for a non-probate transfer via an estate planning trust.

(2)  Did Al intend for his trust to control the disposition of his real property?

A.  Yes.

Unfortunately, current trust law invites confusion by (sometimes) treating a revocable estate planning trust as a separate entity.  Having considered authorities from other states, the California court held as follows:

“A quitclaim deed transferring property to the trustee of a trust is not void as between the grantor and grantee merely because the trust had not been created at the time the deed was executed, if (1) the deed was executed in anticipation of the creation of the trust and (2) the trust is in fact created thereafter.  Such a deed is valid between the grantor and grantee on the date the trust was formed.”

That’s a nice, concrete statement of law, and obviously the result intended by the decedent.  But the conveyancing gloss detracts from a focus on the decedent’s intention.

Luna v. Brownell (June 15, 2010) 2010 DJDAR 8811

No Claim in California for Intentional Interference with an Inheritance Expectancy

Friday, July 9th, 2010

A recent case affirms that California does not recognize a claim based on “intentional interference with an inheritance expectancy.”  However, the court’s analysis leaves the door open to future litigation arising from different fact patterns.

The lawsuit in Munn v. Briggs, 2010 DJDAR 8680 (4th Dist. June 11, 2010) was based on the following claim.  “James alleged Carlyn and Michael intentionally interfered with his inheritance expectancy.  Before the codicil, James had an expectancy to share equally with his sister Carlyn in the balance of the survivor’s trust, each having a one-half interest.”  As a result of the codicil, James took less than he expected from his parent’s estate.

James sued his sister claiming that we was deprived of his inheritance due to Carlyn’s tortious conduct.  “The probate court sustained the demurrer without leave to amend.  In so doing, the court ruled no California case has ever expressly held that the cause of action of intentional interference with an inheritance expectancy is recognized in California.”

On appeal, the court held that “Under American law, testators have a right to completely disinherit nearly anyone, and there is no right to inherit.  Of course, tortious conduct relating to wills, such as the use of undue influence, threats, or coercion to procure a particular disposition, or destruction of a will, has long been understood as a legal wrong, but only against the testator whose right of free testation is infringed upon, not the beneficiary.”

“A purported injury to an intended recipient is not cognizable (because there is no right to inherit); instead, the probate system through the will contest proceeding aims to offer all interested parties a forum in which to litigate the testator’s true intentions.”

Shanghai ExpoThe court recognized that “Section 774B of the Restatement (2d) Torts provides:  ‘One who by fraud, duress or other tortious means intentionally prevents another from receiving from a third person an inheritance or gift that he would otherwise have received is subject to liability to the other for loss of the inheritance or gift’.”

Let’s pause there.  The predicate act must be “fraud, duress or other tortious means.”  Such wrongful conduct is independently actionable.  We do not need to create a new tort to cover acts that are already unlawful.

The Restatement further notes liability under section 774B is “limited to cases in which the actor has interfered with the inheritance or gift by means that are independently tortious in character,” including when a third person has been induced to make or not make a “bequest or gift by fraud, duress, defamation or tortious abuse of fiduciary duty,” or when a will or document making a gift has been “forged, altered or suppressed.”

Now we are sliding into the same morass as “tortious interference with a contract,” which also requires such “independent wrongful conduct.”  Tortious inference with a contract is a murky, unclear area of the law, and should not be expanded.

Even more, we can ask, Why isn’t slander an adequate remedy?  If a person was deprived of a gift because someone lied about them, then slander would be the appropriate remedy.

The court of appeal added that “our independent research also confirms that when a party has an adequate remedy in probate, the party generally will be precluded from recovering in tort for interference with an expectancy.”

For example, “if the claimed wrongdoing relates to the execution or revocation of a will, and the claimant has standing in the probate proceeding, the court should not entertain an independent action even if the jurisdiction recognizes the tort of interference with an inheritance.”

San Gorgonio Wind Park

The court of appeal noted that inheritance laws are “purely a creature of statute” (see In re Darling (1916) 173 Cal. 221, 223), and cited a New Mexico case with approval.  The court in New Mexico stated:

“We feel compelled to protect the jurisdictional space carved out by our legislature when it enacted the Probate Code and created remedies, such as a will contest, designed exclusively for probate.  We note that a will contest in probate requires a greater burden of persuasion than an independent action in tort.  A presumption of due execution normally attaches to a testamentary instrument administered in probate, but not necessarily in tort.”

“If we were to permit, much less encourage, dual litigation tracks for disgruntled heirs, we would risk destabilizing the law of probate and creating uncertainty and inconsistency in its place.  We would risk undermining the legislative intent inherent in creating the Probate Code as the preferable, if not exclusive, remedy for disputes over testamentary documents.”  Wilson v. Fritschy (N.M. App. 2002) 55 P.3d 997.

For now, California does not recognize the tort of “interference with an expectancy.”  To this author, there is no need for such a tort.  However, we would need to consider the proper factual situation, which would involve a lifetime transfer accompanied by “independent wrongful acts,” which would merit further scrutiny.

Munn v. Briggs, 2010 DJDAR 8680 (4th Dist. June 11, 2010)