Osorio v. Hernandez

Filed 10/11/07 Osorio v. Hernandez CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, H. Warren Siegel, Judge. Affirmed.

Wildish & Nialis, Daniel R. Wildish, Jason A. Savlov and Eric M. Camiling for Plaintiff and Appellant.

Anderson, McPharlin & Conners and Michael S. Robinson for Defendant and Respondent.

* * *

Plaintiff and cross-defendant Ofelia Hernandez appeals from a judgment in favor of defendant and cross-complainant Ana Osorio on plaintiffs complaint brought under the Home Equity Sales Contracts Act (the Act; Civ. Code,  1695 et seq.; all further statutory references are to this code unless otherwise stated). Plaintiff sued, among others, Genesis International LLC (not a party to this appeal) alleging it was a home equity purchaser who was subject to the Act because it bought her residence while it was in foreclosure, and defendant, alleging she was a subsequent purchaser with knowledge of the wrongful acts of Genesis.

After a bench trial the court found the Act did not apply because the residence was not in foreclosure at the time Genesis bought it. It also found defendant was a bona fide purchaser for value and plaintiff had no right to rescind the sale. Plaintiff asserts these findings were error and that the residence was in foreclosure as defined under the Act as a matter of law. She also appeals from a judgment on defendants unlawful detainer action, claiming the measure of damages was erroneous. We disagree with each of these contentions and affirm.

FACTS

Plaintiff purchased the residence in question in April 2004. In doing so she obtained two loans secured by trust deeds in the respective amounts of $431,900 and $81,000. Because she was going to be in Mexico from November 2004 through April 2005, plaintiff sent a check to the second trust deed holder, Wells Fargo, in an attempt to make the payments on the loan for that period. In early May 2005 Wells Fargo recorded a notice of default, which stated it was for the payments due beginning December 2004. Although neither party cites to direct evidence in the record, both agree Wells Fargo had applied plaintiffs prepayment to the loan principal.

Plaintiff did not know about the foreclosure until she applied for credit on May 17 at a furniture store. She immediately went to a Wells Fargo office and paid the default amount of $3,500 from the cash she had in hand. Upon payment, plaintiff believed her loan was current. On May 23 a notice of rescission, dated May 19, was recorded.

After plaintiff paid her loan current but before the notice of rescission was recorded, she was contacted by representatives from Genesis who told her they could help clear up her problem with the foreclosure. Even after plaintiff told them she had paid the arrearages, they continued to contact her, telling her she was in a bad way, that the house was going to be taken from [her]. Plaintiff spoke with them over a period of three consecutive days.

During that time, plaintiff spoke two or three times with Eduardo Savallos, a real estate agent who had assisted her when she originally purchased the property and whom she considered a trusted friend. After Savallos investigated, he told plaintiff not to believe the statements, everything was alright, and she should not worry; he also told her not to continue talking to Genesis.

Nevertheless, on May 24 plaintiff executed a home equity sales contract stating she owed a total of $512,900 on her two trust deeds, that Wells Fargo had recorded a notice of default, and that a notice of rescission had subsequently been recorded. It also provided that Genesis would pay plaintiff 35 percent of its net profit after sale of the property.

Genesis then listed the property with Prudential California Realty for $619,950. Based on a comparative marketing analysis, Alfredo Rosas, the Prudential agent, believed the optimum listing price was between $590,000 and $599,000. The listing price was subsequently reduced to $599,950.

Defendant offered, through agent Joseph Huelskamp, to purchase it for $610,000 with an offset credit of $6,000 to pay for closing costs. Huelskamp did not know plaintiff claimed any interest in the property. After the offer was accepted, escrow was opened, an in-person appraisal was conducted, and a termite inspection and termite work were completed. During escrow plaintiff called Rosas and asked how much money she would receive from the sales proceeds.

Escrow closed July 27. The notes securing plaintiffs two trust deeds totaling $524,333 were paid off, and plaintiff was paid $8,000 as her share under the contract.

On the same day defendant went to the residence to pick up the keys. When she introduced herself to plaintiff, plaintiff congratulated [her] as being the new owner . . . . She told defendant she was already packing and that as soon as she was paid the money from escrow she would vacate the property. There was no furniture in the house. Plaintiff also showed defendant how to clean the pool.

When defendant returned to the property the next day, plaintiff was not there; she spoke with plaintiffs husband who said plaintiff was upset because she was supposed to have been paid 35 percent but received only $8,000. The following Monday when defendant again went to the residence, plaintiff told her she had been defrauded because Genesis was to have paid her 35 percent, which she believed amounted to $60,000.

Defendant served plaintiff with a three-day notice to quit and then filed an unlawful detainer action. Plaintiff sued Genesis, defendant, and others for damages under the Act, cancellation of written instruments, breach of fiduciary duty, and quiet title. Defendant filed a cross-complaint against plaintiff, Genesis, and others for quiet title, breach of contract, fraud, negligent misrepresentation, and indemnity. Before trial, counsel for Genesis withdrew, and thereafter Genesis failed to participate in the action.

After a bench trial the court found the contract between plaintiff and Genesis did not fall within the Act. Plaintiff had paid the arrearages and there was no outstanding notice of default that was known to [her]. In addition, plaintiff had told Genesis she had paid the arrearages and the rescission of the notice of default was documented in the contract. The notice of default was still of record at the time of Genesiss initial contact of plaintiff only because Wells Fargo had not yet recorded the notice of rescission.

The court also found defendant was a bona fide purchaser for value and that the only reason plaintiff sought to rescind the sale was because she was not paid the amount of the proceeds she believed she would receive. The court quieted title to the property in favor of defendant and awarded her over $52,000 against plaintiff for damages resulting from her failure to surrender the property after close of escrow.

The court found Genesis committed fraud and awarded plaintiff the remainder of the 35 percent of the net proceeds, amounting to $8,576.

Additional facts are set out in the discussion.

DISCUSSION

1. Introduction

The Act regulates the purchase and sale of residential real property that is in foreclosure. ( 1695 et seq.) It was enacted to curb abuses by home equity purchasers preying on homeowners in financial distress. ( 1695, subds. (a), (d)(1), 1695.13.) Residential real property in foreclosure is residential real property consisting of one-to four-family dwelling units, one of which the owner occupies as his or her principal place of residence, and against which there is an outstanding notice of default . . . that has been properly recorded. ( 1695.1, subd. (b).) An equity purchaser is a person acquiring title to a residence in foreclosure, with certain exceptions not applicable here. ( 1695.1, subd. (a).) An equity seller is one who sells a residence that is in foreclosure. ( 1695.1, subd. (c).)

Plaintiff claims she is one of the persons the Legislature intended to protect under the Act because she speaks little or no English, her primary language being Spanish, and she was financially unsophisticated. She also asserts Genesis undertook a campaign of deceit and intimidation to induce her to sell her property.

Plaintiff contends the sale of her residence to Genesis falls within the Act because it was in foreclosure at the time she executed the contract with Genesis. The court found the sale was not covered by the Act because at the time the contract was executed, plaintiff had cured the default, although the lender had not yet recorded the executed notice of rescission. The court also found she knew there was no outstanding notice of default when she signed the contract. Plaintiff argues the absence of the recording of the notice of rescission at the time Genesis contacted her made the home a residence in foreclosure under the Act.

We need not make that determination to decide the case, however. It makes no difference whether the transaction between Genesis and plaintiff is covered by the Act because in either event plaintiff is not entitled to have the sale to defendant rescinded.

2. Bona Fide Purchaser

Plaintiff maintains she had the right to rescind the conveyance from Genesis to defendant because, as a matter of law, defendant was not a bona fide purchaser for value. We agree with defendant that the issue of whether she was a bona fide purchaser is reviewed for substantial evidence. (Hochstein v. Romero (1990) 219 Cal.App.3d 447, 449.) The record reveals there was sufficient evidence to support the courts ruling that defendant was such a purchaser.

Section 1695.14 provides that an equity seller may rescind the sale of residential property in foreclosure if the equity purchaser has take[n] unconscionable advantage of the property owner in foreclosure. ( 1695.13, 1695.14, subd. (a).) But the right to rescind does not affect the interest of a bona fide purchaser . . . for value if purchase by that party occurred prior to the recordation of the notice of rescission . . . . ( 1695.14, subd. (c).) The elements of a bona fide purchase are payment of value, in good faith and without actual or constructive notice of anothers rights. Absence of notice is an essential requirement in order that one may be regarded as a bona fide purchaser. [Citation.] (Oakdale Village Group v. Fong (1996) 43 Cal.App.4th 539, 547.)

Plaintiff does not claim she recorded a notice of rescission before defendants purchase. Nor does she dispute that defendant paid value. She focuses primarily on defendants purported knowledge of plaintiffs rights.

Plaintiff relies on the portion of section 1695.14, subdivision (c) that states the protections of a bona fide purchaser under that section do not abrogate any duty of inquiry which exists as to rights or interests of persons in possession of the residential real property in foreclosure. She maintains that defendant had both actual knowledge and constructive knowledge through her real estate agent of defects in the contract between plaintiff and Genesis that gave her a duty to inquire. The evidence does not support this position.

Plaintiff asserts defects on the face of the home equity sales contract with Genesis, such as Genesiss failure to provide plaintiff with a copy of the contract and that the contract was not in Spanish, plaintiffs primary language, provided ample notice to defendant. But review of the contract could not inform defendant of plaintiffs lack of receipt of a contract or her primary language.

Plaintiff also points to a lack of notice of cancellation or 10-point type in the contract. But she does not explain what this would give defendant notice of. Defendants awareness that the property had been residential real property in foreclosure was of no consequence. Knowledge that the property was residential real property in foreclosure [does] not impair the status of [a] person[] . . . [who buys residential real property in foreclosure] as [a] bona fide purchaser[] . . . for value. ( 1695.14, subd. (c).) In light of other evidence, defects on the face of the contract did not impart knowledge of plaintiffs potential rights of rescission against Genesis or impose a duty of inquiry.

The court made evidentiary findings supporting defendants status as a bona fide purchaser. It generally credit[ed] [defendants] testimony as to what happened over [plaintiffs]. It found plaintiff was fully aware based on the documents she signed [with Genesis] that Genesis was selling the residence to defendant.

The court noted the listing broker put a for sale sign on the property, to which plaintiff never objected. Defendant testified she learned of the listing by searching Realtor.com and then she contacted Rosas. The court found defendant had a right to rely on information she received from Rosas and from the preliminary title report, which specifically noted the grant deed to Genesis.

The court relied on evidence that the termite company and the appraiser went to the residence to perform their duties. The court discredited plaintiffs testimony that she was not there for those transactions, finding true that she was present for at least some of the time. There was also testimony by Rosas that when he spoke to plaintiff about allowing the termite inspection as part of the sale, she agreed to give him access and did not voice any objections to the sale. Likewise, when the agent contacted plaintiff about arranging for the termite company to do the required work, she did not mention any problem with sale of the property.

Plaintiff argues the presence of others living in the property gave defendant an absolute duty to inquire . . . . (Capitalization omitted.) The general rule is that when a party other than the seller possesses real property, it puts the purchaser on inquiry notice of the rights of the occupant, unless under the peculiar circumstances of the case there is no duty to make inquiry. [Citation.]  . . .  If the circumstances as to possession are such as to put a purchaser on inquiry, he is chargeable with knowledge of all that a reasonably diligent inquiry as to the rights and claims of the occupant might have disclosed. [Citation.] The circumstances of each case determine whether an inquiry should be made. This is ordinarily a question of fact. (Three Sixty Five Club v. Shostak (1951) 104 Cal.App.2d 735, 738.)

Here, the court found that other residents living in the home were not enough to put defendant on notice. It pointed out the residence had six bedrooms and relied on testimony by both plaintiff and defendant that houses in Hispanic families are often shared by a number of people [in] extended families . . . .

In addition, when defendant visited the property one of the residents showed it to her and verified it was for sale. Another person living there told defendant the residents were moving and buying a larger house. No one told defendant of any disputes with Genesis or any objections to the sale. Moreover, even had defendant made inquiry, testimony that plaintiff never objected to the sale shows she would not have obtained any information to the contrary.

As to the third element of a bona fide purchaser, a purchase in good faith, plaintiff claims defendant willfully ignored facts indicating an adverse interest . . . in the property. Plaintiff relies, in part, on defendants waiver of a home inspection and a final walk-through, contrary to the advice of her agent. But there is no evidence the elimination of those steps was done to turn a blind eye to the fact third persons were living in the property, as plaintiff suggests. Defendant already knew of those residents. Neither a walk-through nor a home inspection would have given her any additional information. Because the circumstances were not such that defendant had a duty to inquire, the mere fact she did not was not bad faith.

In sum, the evidence supports the finding defendant was a bona fide purchaser for value of the residence, and plaintiff is not entitled to rescission.

3. Damages

Plaintiff argues the court erred in awarding defendant out-of-pocket damages for her 13 months of wrongful possession of the property after sale by Genesis to defendant. This consisted of mortgage, insurance, and tax payments, which the court specifically awarded on the unlawful detainer claim. She contends section 3334, subdivision (b) provides for payment only of the reasonable rental value of the property.

As defendant points out, section 3334 does not apply here; by its terms it applies only to cases not covered by Code of Civil Procedure section 1174. (Code Civ. Proc.,  3334, subd. (a).) Code of Civil Procedure section 1174 dealing with damages in an unlawful detainer action sets out the correct measure of damages. It provides that the trier of fact shall assess the damages occasioned to the plaintiff by any . . . unlawful detainer . . . [and] shall determine whether actual damages, statutory damages, or both, shall be awarded, and judgment shall be entered accordingly. (Code Civ. Proc.,  1174, subd. (b); see also San Francisco etc. Soc. v. Leonard (1911) 17 Cal.App. 254, 257 [damages for loss of rents, loss of business, expenses to protect property recoverable in unlawful detainer action].) Damages awarded to defendant were proper.

DISPOSITION

The judgment is affirmed. Respondent is entitled to costs on appeal.

RYLAARSDAM, ACTING P. J.

WE CONCUR:

MOORE, J.

ARONSON, J.

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