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New Case: Trustee and Lender Have Qualified Privilege to Record Foreclosure Documents

Martin T. McGuinn

By Martin T. McGuinn, Esq., Kirby & McGuinn, UTA Corporate Counsel

Raymond A. Schep v Capital One, N.A. (Second District 6-26-17):

This breaking news the trustee and lender have at least a qualified privilege to record foreclosure documents.  The Court of Appeal framed the question on appeal as follows:  Are a trustee’s acts in recording a notice of default, a notice of sale, and a trustee’s deed upon sale in the course of a nonjudicial foreclosure privileged under Civil Code section 47.1 We conclude that they are and that a plaintiff does not state a cause of action for slander of title based on the recording of those documents. Accordingly, we affirm the trial court’s order sustaining a demurrer to plaintiff’s slander of title claim without leave to amend.

The plaintiff borrowed $910,000 from a mortgage company secured by a deed of trust to a home in Beverly Hills (the property). The deed of trust designated Chevy Chase Bank, F.S.B. (Chevy Chase) the trustee and Mortgage Electronic Registration Systems, Inc. (MERS) the beneficiary. In July 2009, Chevy Chase merged with defendant Capital One, N.A. (Capital One), and Capital One became the new trustee to the deed of trust.  By October 2009, plaintiff was $29,206.66 behind on his loan payments. In the fall of 2009, MERS named defendant T.D. Service Company (T.D. Service) as the new trustee on the deed of trust, and T.D. Service recorded a NOD.  The TDUS was recorded in 2011 and the property reverted to the beneficiary.

In February 2010 a wild deed was execution by someone not in the chain of title which purported to record a Full Reconveyance of the Capital One trust deed.  The plaintiff claimed that the wild deed reconveying the Capitol One trust deed was effective, and as a result the NOD, NOS and TDUS slandered plaintiff’s title.

The court dismissed the case without leave to amend on the Second Amended Complaint (“SAC”).  The court did not decide the issue of whether the privilege under CC 2924(d) (1) was absolute or qualified.   “Our Legislature’s purpose in declaring these procedures privileged was “to give trustees some measure of protection from tort liability arising out of the performance of their statutory duties.” (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 340 (Kachlon).) That purpose is fulfilled only if all of the procedural steps attendant to a nonjudicial foreclosure are privileged, from the recording of the notice of default and notice of sale through the recording of the trustee’s deed upon sale following the foreclosure sale.” (Id. *6).  The quote does not go far enough as the privilege extends to acts from Civil Code 2920 to 2944.  See Civil Code

The court did not decided the issue whether the privilege was qualified (requiring a showing of malice (See Kachlon supra) or absolute Garretson v. Post (2007) 156 Cal.App.4th 1508, 1517 {section 2924 incorporates § 47’s absolute privilege}.). Whether Garretson still applies after Kachlon decided a year later is a question for another day.

The key takeaway for trustees is that the courts will protect trustees for slander of title claims arising from the recording of documents necessary to initiate and complete the foreclosure process.   Many other tort claims should be covered by the privilege, we will report any updates on the issue at the annual UTA conference.

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