Kalnoki v. First American Trustee Servicing Solutions, LLC
8 Cal. App. 5th 23
Cal. Ct. App.2017Background
- Andrew and Kathi Kalnoki refinanced their home in 2004; they defaulted in 2009 and applied for loan modifications. A nonjudicial trustee's sale occurred in Feb. 2011; U.S. Bank was the purchaser and recorded a Trustee’s Deed Upon Sale.
- Foreclosure-related documents at issue: Deed of Trust, Substitution of Trustee (to Loanstar), Notice of Default, Assignment to U.S. Bank (as trustee for a Bear Stearns securitized trust), Notice of Sale, and Trustee’s Deed Upon Sale.
- The Kalnokis sued the lenders, trustee, and title/agent entities alleging documentary fraud, wrongful foreclosure, UCL violations, conspiracy, and related claims; they attached the foreclosure instruments to their complaint.
- Trial court sustained defendants’ demurrers to the second amended complaint without leave to amend and entered judgments of dismissal with prejudice; it later awarded defendants attorney fees and ordered disbursement of rental funds the Kalnokis had deposited under CCP § 1170.5.
- On appeal, this court affirmed dismissal and the fee award but reversed the order disbursing the deposited rental funds to Wells Fargo, directing those funds returned to the Kalnokis (because the unlawful-detainer judgment said plaintiff waived all monetary damages).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Judicial notice of recorded foreclosure instruments | Kalnoki: court improperly relied on hearsay recitals in recorded documents | Defendants: deeds/assignments/substitutions are judicially noticeable for existence and legal effect | Court: judicial notice was proper; plaintiff had adopted exhibits in complaint so their recitals controlled over contradictory allegations |
| Validity of substitution and trustee actions | Kalnoki: Wells Fargo was only servicer (not beneficiary) or lacked authority; substitutions/robo-signing invalid | Defendants: merger documents, recorded instruments, and agency law supported substitution and trustee acts | Court: Wells Fargo succeeded by merger; FATCO as agent could execute substitution; substitution and trustee acts valid |
| Validity/standing to attack Assignment to securitized trust | Kalnoki: assignment violated pooling agreement, was untimely/void, so U.S. Bank lacked authority | Defendants: any securitization defects are voidable not void; borrower lacks standing to challenge; public records show chain of title | Court: assignment defects (if any) are voidable under applicable trust law; Kalnoki lack standing to void assignment; assignment not nullity |
| Requirement to tender to challenge sale and prejudice | Kalnoki: tender rule should not bar relief; robo-signing and document defects caused prejudice | Defendants: tender rule applies; plaintiffs conceded debt and failed to tender; no prejudice shown because sale merely substituted creditors | Court: tender required (no applicable exception); plaintiffs admitted indebtedness and failure to tender; no prejudicial harm shown |
| UCL and other statutory claims (e.g., Civ. Code §§ 2923.5, 2932.5; Rosenthal Act; UCC) | Kalnoki: foreclosure practices and documents were unlawful/unfair/fraudulent; various statutory violations | Defendants: statutory schemes and exemptions control; many statutes inapplicable or provide no post-sale relief; UCC/Rosenthal do not apply to nonjudicial foreclosure | Court: dismissed UCL (no causation), Civ. Code §2923.5 claims (no relief post-sale), §2932.5 inapplicable to deeds of trust, Rosenthal/UCC claims fail |
| Attorney fees under deed/note | Kalnoki: defendants lack privity or contract claims so fees improper | Defendants: deed/note fee clauses are broad; assignees/successors may recover fees; litigation affected lenders’ interests | Court: fee provisions apply broadly; defendants were prevailing parties and entitled to fees; award affirmed |
| Disbursement of CCP §1170.5 rental deposit | Kalnoki: funds should be returned; U.S. Bank waived monetary damages in unlawful detainer | Defendants: waiver did not preclude recovery of rental-deposit funds; funds represent damages from extension | Held: waiver in unlawful-detainer judgment ("plaintiff waives all monetary damages") covered those funds; disbursement to Wells Fargo reversed and funds returned to Kalnokis |
Key Cases Cited
- Yvanova v. New Century Mortgage Corp., 62 Cal.4th 919 (Cal. 2016) (recorded foreclosure instruments may be judicially noticed and borrower may have standing in narrow circumstances)
- Gomes v. Countrywide Home Loans, Inc., 192 Cal.App.4th 1149 (Cal. Ct. App. 2011) (California's nonjudicial foreclosure statutes are comprehensive; no extra requirements)
- Herrera v. Deutsche Bank Nat’l Trust Co., 196 Cal.App.4th 1366 (Cal. Ct. App. 2011) (limits on taking judicial notice of recitals when assignment vitality is reasonably disputed)
- Alliance Mortg. Co. v. Rothwell, 10 Cal.4th 1226 (Cal. 1995) (lender may credit-bid at trustee’s sale; foreclosure extinguishes borrower’s debt generally)
- Debrunner v. Deutsche Bank Nat’l Trust Co., 204 Cal.App.4th 433 (Cal. Ct. App. 2012) (UCC negotiable-instrument provisions do not displace California nonjudicial foreclosure framework)
- Rajamin v. Deutsche Bank Nat’l Trust Co., 757 F.3d 79 (2d Cir. 2014) (New York authority: trustee’s unauthorized acts are voidable, not automatically void)
- Sciarratta v. U.S. Bank Nat’l Ass’n, 247 Cal.App.4th 552 (Cal. Ct. App. 2016) (contrasting view that wrongful foreclosure by wrong party alone can establish prejudice)