Law Offices of J. Arthur Roberts | Southern California Bankruptcy Attorney

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The CALVO decision of the Second District Court of Appeal effectively sanctioned the robo-signer practice by ruling that the recording of an ASSIGNMENT was not a pre-requisite to foreclosure. CALVO's Attorney Dennis Moore has taken the matter to the California Supreme Court for review of the decision. The Petition, filed today, is as follows:

PETITION FOR REVIEW

Eugenia Calvo petitions for review of the decision issued from the Second District Court of Appeal, Division Eight, issued September 13, 2011 (attached as Exhibit A).

Must an assignee of a note and deed of trust have its interest acknowledged and recorded, making its interest a public record, prior to exercising the power of sale within the deed of trust and initiating a non-judicial foreclosure on real property?

In other words, should California Civil Code § 2932.5 apply to deeds of trust?

California Civil Code § 2932.5 provides:

"Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded." 2

This issue is an important issue in California. In California, 1 in every 259 housing units received a notice of default filing in September of 20111. The amount of foreclosures in 2011 is expected to be greater than in previous years.2 .

1 http://www.realtytrac.com/trendcenter/trend.html

2 http://www.foreclosurebusinessnews.com/home-foreclosure-statistics-for-first-time-in-history-foreclosures-top-1-million-thats-not-the-worst-of-it/

In this case, Respondent, HSBC Bank USA, N.A., as Trustee, On Behalf of Ace Securities Corp. Home Equity Loan Trust and for the Registered Holders of Ace Securities Corp. Home Equity Loan Trust, Series 2007-ASAP1, Asset Backed Pass-Through Certificates ("HSBC") foreclosed on Petitioner, Eugenia Calvo's home without any public record showing HSBC as the foreclosing bank and owning Eugenia Calvo's loan.

In Bank of Italy Nat'l Trust and Savings Ass'n v. Bank of Italy, 217 Cal. 644, this Court demonstrated that laws applicable to only mortgages can be extended to cover deeds of trust as well. In Bank of Italy, although California Code of Civil Procedure § 726's wording only made it applicable to mortgages, this Court held it also applies to deeds of trust in addition to mortgages. Id. at 658. Part of this Court's reasoning in extending California Code of Civil Procedure § 3

726 to also apply to deeds of trust was the "anomalous nature of deeds of trust in this state." Furthermore, the mere difference of title passing in a deed of trust shouldn't be the reason an obligee shouldn't have to first exhaust its security before filing a suit against the obligor. Id.

In the midst of the foreclosure crisis, this Court has an opportunity to determine whether the mere fundamental difference in mortgages and deeds of trust should be a basis to treat mortgages and deeds of trust differently under laws relating to the exercise of the power of sale within such instruments. This Court will be able to decide whether the California Legislature already addressed this issue when it enacted California Civil Code § 2924f(c)(2), which provides:

"Except as otherwise expressly set forth in this subdivision, all other provisions of law relating to the exercise of a power of sale shall govern the exercise of a power of sale contained in a deed of trust or mortgage described in paragraph (1)."

If California Civil Code § 2932.5 applies to deeds of trust, then whenever a loan is sold on the secondary mortgage market, such as most loans today, the purchaser of the note and deed of trust only has to record its interest first, then the purchaser can exercise the power of 4

sale and initiate a non-judicial foreclosure. Such a requirement gives the public a means of knowing who the foreclosing bank is on a particular piece of real property. California Civil Code § 2932.5 would protect borrowers from confusion of who owns their loan.

The decisions that hold California Civil Code § 2932.5 doesn't apply to deeds of trust recognize deeds of trust to be treated differently than mortgages. None of these decisions recognize the "anomalous nature" of deeds of trust and mortgages. None of these decisions recognize that since Bank of Italy, this Court went a step further and described deeds of trust as liens in Monterey S. P. Partnership v. W. L. Bangham, Inc. 49 Cal.3d 454, 460. ["In practical effect, if not in legal parlance, a deed of trust is a lien on the property"]. The deed of trust conveys title to the trustee only so far as it may be necessary for the execution of the trust. Id.

None of these decisions address California Civil Code § 2932.5's plain wording and address who the "Other Encumbrancers" are referred to in California Civil Code § 2932.5 in order to meet the elementary rules of statutory construction. Torrey Hills Community Coalition v. City of San Diego, (2010) 186 Cal.App.4th 429, 440. 5

None of these decisions address the effect of California Civil Code § 2924f(c)(2). Currently, there are no cases that discuss and analyze California Civil Code § 2924f(c)(2). There is no caselaw addressing California Civil Code § 2924f(c)(2).

Review is necessary to determine whether it should be a public record who is foreclosing on real property. Review will provide this Court with an opportunity to clarify how the anomalous nature of deeds of trust and mortgages affect laws that relate to the exercising of the power of sale, and Review can finally give guidance to California Civil Code § 2924f(c)(2), which has never been interpreted in any decision.

Whether the Court of Appeal ruled correctly or not, answering the questions raised here involves analyzing novel legal issues of tremendous importance justifying this Court's review.

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II.

QUESTIONS PRESENTED FOR REVIEW

1. Does California Civil Code § 2932.5 apply to deeds of trust?

2. Does the fundamental difference between deeds of trust and mortgages a reason to treat deeds of trust and mortgages differently under laws relating to the exercise of the power of sale?

3. Since California Civil Code § 2932.5 plain wording applies to "Other Encumbrancers," if California Civil Code § 2932.5 applied only to mortgages, would such an interpretation cause California Civil Code § 2932.5 to contain superfluous and inoperative language?

III.

STATEMENT OF THE CASE

A. The Lender of Eugenia Calvo's Loan Was CBSK Financial Group, Inc.

On April 27, 2006, Eugenia Calvo ("Ms. Calvo") obtained a loan ("Loan") from CBSK Financial Group, Inc. ("CBSK") by executing a note ("Note"), which was secured by real property ("Property") via a deed of trust ("DOT"). (CT. p. 95). The DOT identified CBSK as the lender, Mortgage Electronic Registration 7

Systems, Inc. ("MERS") as beneficiary, and Lawyers Title Company ("LTC") as trustee under the DOT. (CT. p. 95) (See CT. p. 100 for Exhibit A, identifying parties in DOT).

B. HSBC Exercised the Power of Sale Within the Deed of Trust

Provision 22 of the DOT provides in relevant part:

[1st Paragraph] "....... Lender at its option may ...... and may invoke the power of sale..." (CT p. 110 - 111).

[2nd Paragraph] "........ If the Lender invokes the power of sale, Lender shall execute or cause Trustee to execute a written notice of the occurrence of an event of default and of Lender's election to cause the Property to be sold ....." (CT p. 111).

The last paragraph on the second page of the DOT provides in relevant part:

".... This security instrument secures to Lender: (1) the repayment of the Loan..." (CT. p. 101).

On July 9, 2008, foreclosure proceedings against the Property were commenced by a Notice of Default and Election to Sell under Deed of Trust ("NOD") being recorded in the Los Angeles County 8

Recorder's Office ("Recorder's Office"). (CT. p. 95) (See CT. p. 123 for Exhitbit B, which contains the NOD). HSBC caused the NOD to be recorded. (CT. p. 96).

On January 5, 2009, Aztec conducted a non-judicial foreclosure sale ("Foreclosure"), and the Property was sold to HSBC. (CT. p. 96). On January 9, 2009, a Trustee's Deed Upon Sale ("TDUS") was recorded, granting and conveying the Property to HSBC. (CT. p. 136). The TDUS labels HSBC as the "foreclosing beneficiary." HSBC was a purported assignee of the Note and DOT prior to the Foreclosure; HSBC exercised the power of sale within the DOT. (CT. p. 96).

C. HSBC's Exercised the Power of Sale Without There Being Any Public Record of its Interest

Although HSBC was the purported foreclosing beneficiary and exercised the power of sale within the DOT, no document or instrument was ever acknowledged and recorded in the Recorder's Office, making HSBC's purported interest as the beneficiary under the DOT a public record. (CT. p. 96).

In Ms. Calvo's second amended complaint ("SAC"), Ms. Calvo alleged a violation of California Civil Code § 2932.5 against HSBC. 9

(CT. p. 97). HSBC's responsive pleading to the SAC was a demurrer, and HSBC's primary argument was California Civil Code § 2932.5 did not apply to deeds of trust. (CT. p. 165). The trial court sustained HSBC's demurrer to the SAC without leave to amend and dismissed the case. (CT. p. 255). The Court of Appeal upheld the Trial Court's ruling, asserting California Civil Code § 2932.5 did not apply to deeds of trust.

IV.

REVIEW IS NECESSARY TO SETTLE AN IMPORTANT ISSUE OF LAW AND TO SECURE UNIFORMITY OF DECISIONS

A. Review is Necessary to Settle an Important Issue of Law and to Clarify the Anomalous Nature of Deeds of Trust and Mortgages

The important issue of law to settle is whether California Civil Code § 2932.5 applies to deeds of trust. However, this issue of law raises other important issues of law, such as:

1) Whether deeds of trust and mortgages should be treated equally under laws relating to the exercise of the power of sale;

2) Whether due to California Civil Code § 2932.5's plain wording, California Civil Code § 2932.5 must be interpreted

to apply to deeds of trust in order to prevent California Civil Code § 2932.5 from containing superfluous and inoperative language.

In Bank of Italy, first this Court discussed the common law rule followed in most other states, which was "a deed of trust, both in legal effect and in theory, is deemed to be a mortgage with a power of sale, and differs not at all from a mortgage with a power of sale." Id. at 654. However, California adopted the "lien" theory for mortgages and "title" theory for deeds of trust. Id. at 655.

Next, this Court thoroughly discussed the California caselaw history of mortgages and deeds of trust. In the past, there were two lines of authority; one group of cases emphasized the distinction between deeds of trust and mortgages, and the other group emphasized the similarity between them. Id. at 655. There was also a new line of cases, which assert that although in theory deeds of trust are different than mortgages, the function and purpose of the two securities are identical, and therefore, such cases apply the same rules to deeds of trust that are applied to mortgages. Id. 11

After breaking down the history of deeds of trust and mortgages, this Court held California Code of Civil Procedure § 726 also applies to deeds of trust in addition to mortgages. Id. at 658. Part of this Court's reasoning in extending California Code of Civil Procedure § 726 to also apply to deeds of trust was the "anomalous nature of deeds of trust in this state." Furthermore, the mere difference of title passing in a deed of trust shouldn't be the reason an obligee shouldn't have to first exhaust its security before filing a suit against the obligor. Id.

Review is necessary to clarify the anomalous nature of deeds of trust to mortgages. Every decision that held California Civil Code § 2932.5 inapplicable to deeds of trust interprets deeds of trust to be different from mortgages. The Court of Appeal in this case, Calvo v. HSBC Bank, interprets Bank of Italy to recognize the distinction between a mortgage and deed of trust has become well settled in our law and now cannot be disturbed. Calvo at 6 of 9. Stockwell v. Barnum 7 Cal.App. 413 was decided in 1908, in an era which distinguished deeds of trust from mortgages, and Stockwell was heavily relied on by the Calvo Court. Stockwell distinguished deeds of trust from mortgages. 7 Cal.App. 413, 416. Stockwell ruled: 12

"The transferee of a negotiable promissory note, payment of which is secured by a deed of trust whereby the title to the property and power of sale in case of default is vested in a third party as trustee, is not an encumbrancer to whom power of sale is given, within the meaning of section 8583 of the Civil Code." Id. at 417.

3 In 1986 Civil Code § 2932.5 continued Civil Code § 858 without substantive change.

Every federal decision cited by the Calvo Court distinguishes deeds of trust from mortgages. The Calvo Court cites Roque v. Suntrust Mortgage, Inc., 2010 WL 546896 (attached as Exhibit B), Parcray v. Shea Mortg, Inc., 2010 WL 1659369 (attached as Exhibit C), and Caballero v. Bank of America, 2010 WL 4604031 (attached as Exhibit D). None of these federal decisions discuss the issue of whether the fundamental difference between deeds of trust and mortgages should be a basis to not extend California Civil Code § 2932.5 to deeds of trust. Instead, these decisions distinguish the two instruments.

Roque v. Suntrust Mortgage, 2010 WL 546896 *3 held "2932.5 applies to mortgages, not deeds of trust. It applies only to mortgages 13

that give a power of sale to the creditor, not to deeds of trust which grant a power of sale to the trustee." Part of the basis for the Roque decision was the Roque Court's analysis of the differences between deeds of trust from mortgages in California. Roque states:

"A deed of trust generally involves three parties, the borrower/trustor who conveys the right to sell the property to the trustee, for the benefit of the lender/beneficiary. (Citations). The practical effect is the creation of a lien on the subject property. (Citations)." Id. at 3.

Parcray cites Roque when it held: "There is no requirement under California law for an assignment to be recorded in order for an assignee beneficiary to foreclose." Parcray at 10.

Caballero cites Roque and Parcray in asserting 2932.5 does not apply to deeds of trust. Caballero at 3. Caballero cites Bank of Italy, but cites the part of the Bank of Italy decision that discusses the history of California's treatment of deeds of trust from mortgages on pinpoint page 655 of Bank of Italy. Caballero asserts:

"California courts have not eliminated the distinction between deeds of trusts and mortgages. See Bank of Italy Nat. Trust and 14

Savings Ass'n v. Bently, 217 Cal. 644, 655, 20 P.2d 940 (1933)." Caballero, page 3.

Caballero also cites Stockwell when asserting:

"The only California state court decision on point similarly distinguishes between a deed of trust and a mortgage. See Stockwell v. Barnum, 7 Cal.App. 413, 416-17, 94 P. 400 (Cal.App.1908)." Id.

The only Court that interprets Bank of Italy to find deeds of trust and mortgages are substantially the same and addresses the issue of whether California Civil Code § 2932.5 applies to deeds of trust is a published federal bankruptcy decision, U.S. Bank, N.A. v. Skelton (In re Salazar) (Bankr. S.D.Cal. 2011) 448 B.R. 814, which concluded California Civil Code § 2932.5 does apply to deeds of trust. Id. at 820. In re Salazar asserts the historical distinction between deeds of trust and mortgages is not obsolete under Bank of Italy. In re Salazar at 820-821. The In re Salazar Court recognizes California Civil Code § 2932.5 provides borrowers with statutory 15

protections; it protects borrowers from the confusion of ownership of their loan. Id. at 821. Ultimately, the In re Salazar Court concluded:

"Because controlling Supreme Court authority requires this Court to enforce statutory borrower protections regardless of whether nonjudicial foreclosure is sought under a mortgage or a deed of trust, the Court must conclude Civil Code section 2932.5 applies to U.S. Bank's deed of trust here." Id. at 822.

Due to the varying viewpoints of whether mortgages and deeds of trust are similar by the different Courts, review of the Calvo decision gives this Court an opportunity to clarify whether deeds of trust should be treated differently than mortgages and to what extent under laws relating to the exercise of the power of sale. This issue might have already been answered by California's Legislature when it enacted California Civil Code § 2924f(c)(2). However, there are no decisions that discuss this statute. Furthermore, review will also help prevent other Courts from interpreting California law to treat deeds of trust and mortgages differently.

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B. Review is Necessary to Settle Whether it is Possible to Interpret California Civil Code § 2932.5 to not Apply to Deeds of Trust.

Review will also determine whether it is possible to interpret the plain wording of California Civil Code § 2932.5 to not apply to deeds of trust and still meet the elementary rules of statutory construction. Torrey Hills Community Coalition v. City of San Diego, (2010) 186 Cal.App.4th 429, 440. None of the decisions address who the "Other Encumbrancers" are referred to in California Civil Code § 2932.5.

C. Review is Necessary to Secure Uniformity of Decisions

Review is also necessary to secure uniformity of decisions. Currently, the decisions are in conflict. Stockwell and the numerous federal authorities, such as Caballero, Parcray, and Roque hold California Civil Code § 2932.5 doesn't apply to deeds of trust. Contrary to these decisions is In re Salazar and Strike v. Transwest Discount Corp.,(1979) 92 Cal.App.3d 735. In Strike's analysis, Civil Code § 858 was referred to in the following manner:

"A recorded assignment of note and deed of trust vests in the assignee all of the rights, interests of the beneficiary (Musgrave v. Renkin, 180 Cal. 785 [183 P. 145]) including authority to 17

exercise any power of sale given the beneficiary (Civ. Code, § 858)."

Due to the different holdings, review provides an opportunity to clarify and settle the issue of the applicability of California Civil Code § 2932.5 to deeds of trust to secure uniformity in the decisions.

V.

CONCLUSION

This petition presents significant legal questions worthy of this Court's attention. Review should be granted.

Dated: October 22, 2011 Respectfully Submitted,

_________________________ Dennis Moore, Attorney for Petitioner, Eugenia Calvo

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ROBO SIGNER CASE submitted for HIGH COURT REVIEW

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