Tuesday, April 22, 2014

FYI: Cal App Says Judgment in Unlawful Detainer Action Bars Challenge to Foreclosure

Tuesday, September 28, 2010

A California appellate court recently affirmed a trial court's judgment against homeowners whose property had been sold in nonjudicial foreclosure and who had entered into a stipulated judgment in an eviction and unlawful detainer action.  In so doing, the court held that the homeowner's attempt to bring this subsequent action against the purchaser, beneficiary and trustee as to the subject property was barred by the stipulated judgment, as the unlawful detainer judgment had a claim preclusive effect in the action challenging the validity of the purchaser's title. 
 
A copy of the opinion is available at: 
http://www.courtinfo.ca.gov/opinions/documents/B221470.PDF 
 
When plaintiffs became delinquent on their refinance home mortgage loan, a notice of default was served and recorded on the property.  The notice identified a different beneficiary and trustee from those that were identified in the original deed of trust, but no substitution had been served or recorded showing the new trustee/beneficiary. 
A substitution was recorded evidencing the change in trustee before the nonjudicial foreclosure sale, but there was no recording showing substitution of the beneficiary until two months after the new trustee conducted the nonjudicial foreclosure sale.   
 
The purchaser at the sale instituted an eviction and unlawful detainer action,  and the former homeowners responded alleging that the foreclosure sale was invalid due to improper notice, as well as unspecified "irregularities in the sale."  A stipulated judgment was entered in the unlawful detainer actionand the former homeowners then filed this action against the purchaser, the new trustee and the new beneficiary, asserting claims for, among other things: declaratory relief, quiet title and willful wrongful foreclosure.  The trial court sustained defendants' demurrer without leave to amend and this appeal followed.

The appellate court held that the demurrer was properly sustained without leave to amend, because the stipulated judgment in the unlawful detainer action barred this action.  More specifically, the court held that the "stipulated judgment in the related unlawful detainer action brought by [purchaser] against plaintiffs was res judicata as to plaintiffs' claims in this action which all arise from the alleged invalidity of the foreclosure sale."  Because the court ruled that this ground was "dispositive," it did not consider whether there were also defects in the foreclosure sale.

The court acknowledged that a judgment arising from an unlawful detainer action generally is given limited res judicata effect, it pointed to the "qualified exception to the rule that title cannot be tried in unlawful detainer that is contained in Code of Civil Procedure section 1161a, which extends the summary eviction remedy beyond the conventional landlord-tenant relationship to include certain purchasers of property" in making its decision.  More specifically, "Code of Civil Procedure section 1161a ... provides an unlawful detainer action may be filed '[w]here the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust . . . and the title under the sale has been duly perfected.'"   
 
Moreover, under California law a "judgment entered without contest, by consent or stipulation, is usually as conclusive a merger or bar as a judgment rendered after trial."  Here, because the unlawful detainer complaint was brought under section 1161a, "it was proper for limited issues pertaining to the validity of title obtained by [the purchaser] in the sale to be raised and conclusively resolved."  Because all six claims in the plaintfifs' complaint were premised on the alleged invalidity of the saleand because the sole basis upon which the purchaser asserted its right to possession of the property in the unlawful detainer action was its "duly perfected" legal title obtained in the nonjudicial foreclosure sale, the validity of the purchaser's title had to be resolved in the unlawful detainer action.



Eric Tsai
McGinnis Wutscher Beiramee LLP
 
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