Case Name: Alice Grady v. Woodleaf Commons Homeowners Association, et al.
Case No.: 17CV319809

I. Factual and Procedural Background

This case brought by plaintiff Alice Grady (“Plaintiff”) against defendants Woodleaf Commons Homeowners Association (“Woodleaf”), G&P Enterprises, LLC d/b/a Allied Trustee Services (“Allied”), and Hung V. Lu (“Lu”) (collectively, “Defendants”) arises from a non-judicial foreclosure of Plaintiff’s home.

According to the allegations of the complaint, Plaintiff owns real property located at 2995 Rose Avenue, San Jose, California 95127 (“the Property”). In connection with her purchase of the Property, Plaintiff entered into a contract with Woodleaf, a homeowners association. Allied is a debt collection agency and non-judicial foreclosure trustee utilized by Woodleaf. Woodleaf caused a Notice of Delinquent Assessment to be recorded against the Property for delinquent homeowners association fees, and a lien was placed on the Property. Subsequently, Woodleaf caused a Notice of Default to be recorded. Approximately two years later, Woodleaf caused a Notice of Trustee Sale to be recorded against the Property. Allied was the trustee listed on the Notice of Trustee Sale. Shortly thereafter, the Property was sold to Revestors LLC for $189,300. Revestors LLC then sold it to Lu.

Plaintiff alleges that the delinquency in payment was due to Woodleaf and Allied mishandling and misapplying her homeowners association fees. She also alleges that Woodleaf’s board failed to properly vote on the lien before placing it on the Property. In addition, Plaintiff alleges she did not receive notice of Woodleaf’s meet and confer program or alternative dispute resolution program prior to the recording of the Notice of Delinquent Assessment, was not served with the Notice of Default, and was not notified of the recording of the Notice of Trustee Sale.

Based on the foregoing allegations, Plaintiff alleges causes of action for: (1) violation of Civil Code section 5670; (2) violation of Civil Code section 5673; (3) violation of Civil Code section 5705; (4) violation of Civil Code section 5715; (5) violation of Civil Code section 2924f; (6) violation of Civil Code section 5710; (7) wrongful foreclosure; (8) quiet title; (9) negligence; (10) elder financial abuse; and (11) violation of Business and Professions Code section 17200, et seq.

Currently before the Court is Allied’s demurrer to the fourth through seventh, ninth, and eleventh causes of action on the ground of failure to state sufficient facts. (See Code Civ. Proc., § 430.10, subd. (e).) Plaintiff filed an opposition to the demurrer, and Allied filed a reply.

II. Discussion

A. Request for Judicial Notice

“Judicial notice is the recognition and acceptance by the court, for use by the trier of fact or by the court, of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.” (Unruh-Haxton v. Regents of University of California (2008) 162 Cal.App.4th 343, 364.) Matters subject to judicial notice are listed in Evidence Code sections 451 and 452. (Id. at p. 364.) A precondition to judicial notice is that the matter to be noticed must be relevant to a material issue before the court. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2.)

Allied requests judicial notice of real property records related to the foreclosure. The real property records, which concern the Property, are: a Notice of Delinquent Assessment recorded in October 2013; a Notice of Default recorded in June 2014; a Notice of Trustee sale recorded in June 2016; a Certificate of Foreclosure Sale Subject to Redemption recorded in July 2016; and a Trustee’s Deed Upon Sale recorded in October 2016.

“Pursuant to [Evidence Code section 452, subdivisions (c) and (h)] courts have taken judicial notice of the existence and recordation of real property records, including deeds of trust, when the authenticity of the documents is not challenged.” (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264 disapproved of on other grounds by Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919.) “[A] court may take judicial notice of the fact of a document’s recordation, the date the document was recorded and executed, the parties to the transaction reflected in a recorded document, and the document’s legally operative language, assuming there is no genuine dispute regarding the document’s authenticity. From this, the court may deduce and rely upon the legal effect of the recorded document, when that effect is clear from its face.” (Id. at p. 265.) Thus, the subject real property records are generally proper subjects of judicial notice.

However, Allied only cites two of these subject records in support of any particular argument raised in its demurrer: (1) the Certificate of Foreclosure Sale Subject to Redemption; and (2) the Trustee’s Deed Upon Sale. Both are used to support Allied’s argument that Revestors, LLC was a bona fide purchaser. As such, the other records are not relevant to resolving the demurrer and, consequently, are not judicially noticeable.

Accordingly, Allied’s request for judicial notice is GRANTED IN PART and DENIED IN PART. The request is GRANTED as to the Certificate of Foreclosure Sale Subject to Redemption and the Trustee’s Deed Upon Sale. The request is DENIED as to the remaining real property records.

B. Substantive Merits of Demurrer

Allied demurs to each cause of action asserted against it on the ground that Plaintiff fails to allege sufficient facts to state a claim. Allied generally asserts he following arguments as to each cause of action: “the foreclosure sale is conclusively presumed to have been conducted regularly and fairly, [its] actions were privileged, and Plaintiff has not alleged, let alone demonstrated, she could cure the amount of her outstanding debt owed to Woodleaf.” (Pts. and Auths. ISO Dem., p. 3:7-10.)

The Court considers each argument in turn below.

1. Conclusive Presumption of Regularity

Allied argues that “Plaintiff’s allegations regarding purported irregularities in the foreclosure process cannot state a claim against it as a matter of law” because the foreclosure sale is “conclusively presumed to have been conducted regularly and properly.” (Pts. & Auths. ISO Dem., p. 4:15-17.) Allied contends that this conclusive presumption applies because “the Property was sold to a bona fide purchaser, Revestors, LLC …, and the recorded Trustee’s Deed Upon Sale recites that all statutory notice requirements and procedures required by law for the conduct of the foreclosure have been satisfied.” (Id. at p. 4:12-14.)

Allied’s argument is unavailing for a number of reasons.

The purchaser at a foreclosure sale takes title by a trustee’s deed. (Moeller v. Lien (1994) 25 Cal.App.4th 822, 831.) “If the trustee’s deed recites that all statutory notice requirements and procedures required by law for the conduct of the foreclosure have been satisfied, a rebuttable presumption arises that the sale has been conducted regularly and properly; this presumption is conclusive as to a bona fide purchaser.” (Ibid.) “Since the presumption is rebuttable as to purchasers other than bona fide purchasers, the purchaser’s title may in some instances be recovered by the trustor in an attack on the validity of the sale. [Citation.] As to a bona fide purchaser, however, the presumption is conclusive. Thus, as a general rule, a trustor has no right to set aside a trustee’s deed as against a bona fide purchaser for value by attacking the validity of the sale. [Citation.] The conclusive presumption precludes an attack by the trustor on a trustee’s sale to a bona fide purchaser even though there may have been a failure to comply with some required procedure which deprived the trustor of his right of reinstatement or redemption. [Citation.] The conclusive presumption precludes an attack by the trustor on the trustee’s sale to a bona fide purchaser even where the trustee wrongfully rejected a proper tender of reinstatement by the trustor. (5) Where the trustor is precluded from suing to set aside the foreclosure sale, the trustor may recover damages from the trustee. [Citation.]” (Id. at pp. 831–832.)

Here, Allied does not attempt to show that any of the causes of action alleged against it attempt to set aside the foreclosure sale. The fourth through seventh causes of action merely seek damages in connection with Allied’s alleged statutory violations. The ninth cause of action seeks damages in connection with Allied’s alleged negligence. The tenth cause of action seeks injunctive relief and restitution in connection with Allied’s alleged unlawful business practices. Even the seventh cause of action for wrongful foreclosure does not seek to set aside the sale.

Assuming for the sake of argument that claim constitutes an attack on the sale, the presumption is only conclusive as to bona fide purchasers. The term bona fide purchaser means “ ‘one who pays value for the property without notice of any adverse interest or of any irregularity in the sale proceedings. [Citations.]’ [Citation.]” (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1250.) The issue of whether Revestors, LLC was a bona fide purchaser for value cannot be resolved on demurrer. Although Plaintiff alleges Revestors, LLC paid $189,300 for the Property, there are no allegations showing adverse interests or any irregularity in the sale proceedings. Allied has not established that Revestors, LLC was a bona fide purchaser or that the conclusive presumption applies in favor of Revestors.

2. Allied’s Duties and Receipt of Notice

Allied argues that it is not required by statute to ensure that Plaintiff actually received the Notice of Default or Notice of Trustee Sale. However, Allied does not explain how this argument relates to any specific cause of action. Allied fails to articulate why its argument means Plaintiff’s causes of action fail to state a claim.

Furthermore, the cases cited by Allied only address a trustee’s duties under Civil Code sections 2924-2994h. Thus, at best, Allied establishes that it was not required to ensure actual receipt of the subject notices under Civil Code sections 2924-2924h. The only cause of action alleging a violation of those statutes is the fifth cause of action. Moreover, in the fifth, cause of action, Plaintiff does not allege Allied had a duty to ensure she received notice; rather, she alleges that no notice was posted to her door as required by Civil Code 2924f, subdivision (b)(3).

Thus, Allied’s argument is not well taken.

3. Qualified Privilege

Allied argues that it is protected by a qualified privilege under Civil Code sections 47, subdivision (c)(1) and 2924.

“[S]ection 47 provides an absolute privilege for communications made in a ‘judicial proceeding’ [Citation.], generally referred to as the litigation privilege.10 It also provides an absolute privilege for communications made ‘in any other official proceeding authorized by law.’ [Citation.].) By contrast, it provides a qualified privilege for communications made ‘without malice, to a person interested therein, … by one who is also interested’ [Citation.], the so-called common interest privilege.” (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 335–336.) In sum, the privilege applies to communications. (Ibid.) “[S]ection 2924 deems the statutorily required mailing, publication, and delivery of notices in nonjudicial foreclosure, and the performance of statutory nonjudicial foreclosure procedures, to be privileged communications under the qualified common-interest privilege of section 47, subdivision (c)(1). (Id. at p. 333.)

Allied’s argument is not well-taken as it does not explain how the qualified privilege applies to any of Plaintiff’s causes of action. Moreover, the claims alleged against Allied are not predicated on the communications themselves. Rather, the claims are based on the failure to provide notice of the trustees sale or right to redemption, the failure to ensure receipt of the notices, and the failure to post the notices on the Property’s door. Thus, the privilege does not bar plaintiff’s claims.

4. Tender Requirement

Allied contends that Plaintiff’s claims must fail because she does not allege that she has tendered the amount of her debt or facts excusing compliance with the tender rule.

As a preliminary matter, Allied fails to articulate why Plainitff’s failure to plead an ability to tender the amount of her debt or facts excusing the same is fatal to the fourth, fifth, sixth, ninth, and eleventh causes of action. The only case law cited by Allied in support of its argument involves claims of wrongful foreclosure. Because Allied fails to show that the tender rule applies to claims other than wrongful foreclosure, its argument lacks merit as to the fourth, fifth, sixth, ninth, and eleventh causes of action.

With respect to claims for wrongful foreclosure, a mortgagor who seeks to set aside a voidable sale or seek damages from the sale must allege tender of payment of the indebtedness (Karlsen v. American Savings & Loan Assn. (1971) 15 C.A.3d 112, 117) or an excuse (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 112-113 (Lona)). A party is excused from compliance with the tender requirement: (1) when a borrower attacks the validity of the underlying debt; (2) when the borrower has a set-aside or counter claim; (3) where it would be inequitable to impose a tender requirement; or (4) when the trustee’s deed is void on its face. (Lona, supra, 202 Cal.App.4th 89 pp. 112-113). Here, Plaintiff alleges facts showing that she is arguably excused from complying with the tender requirement. Plaintiff alleges that the defects in the foreclosure proceeding were substantial as there was a failure to give notice of the trustee sale. (Ram v. OneWest Bank, FSB (2015) 234 Cal.App.4th 1, 11 [“ A sale is rendered void, though, when the defects are substantial, such as when there has been a failure to give notice of sale to the trustor or to specify the correct default in the notice of default”].)

Plaintiff also alleges the underlying lien was not voted on by the Woodleaf board. Civil Code section 5673 requires that liens based on assessments “shall be made only by the board … .” (Civ. Code, § 5673.) If an association fails to comply with this requirement, it “shall, prior to recording a lien, recommence the required notice process.” (Civ. Code, § 5690.) Failure to comply with the procedural requirements before filing a lien results in an invalid lien. (See Diamond v. Superior Court (2013) 217 Cal.App.4th 1172, 1192 [interpreting prior Civ. Code §§ 1367.1 and 1367.4 and ruling failure to comply rendered resulting lien invalid].) Thus, Plaintiff alleges that Woodleaf failed to follow mandatory procedures, and the lien against her is allegedly invalid. Consequently, Plaintiff has adequately alleged an exception to the tender requirement.

5. Conclusion

Accordingly, the demurrer to the fourth through seventh, ninth, and eleventh causes of action against Allied is OVERRULED.

As to the Order to Show Cause re Failure to Serve on the court’s calendar at 10 a.m., this hearing is VACATED as the Court finds all parties have been served and have appeared. Case Management Conference is set on 11/27/18 at 10 a.m.