1 Cal. App. 5th 767
Cal. Ct. App.2016Background
- In 2007 Stephanie Naifeh obtained a $500,000 mortgage from WaMu secured by a deed of trust on San Francisco property; the loan was later serviced/handled through securitization and servicing transfers (Chase, then assignment to Bank of America as trustee of HY06 trust).
- Naifeh defaulted in 2008; a trustee’s sale was scheduled and continued; BofA obtained title via a trustee’s deed upon sale in June 2010.
- In 2009–2010 Naifeh sent written notices purporting to rescind the loan under TILA; she later recorded multiple documents (substitutions, reconveyance, modification, warranty deed to Easterly) that the court found were fraudulently executed.
- BofA sued (later substituted by U.S. Bank as plaintiff) for cancellation of eight recorded instruments and sought other relief; trial was held and judgment entered for plaintiff cancelling the instruments.
- Appellants defended mainly on TILA rescission (arguing rescission voided the security interest and foreclosure) and on standing/assignment/securitization defects. After trial, Supreme Court intervening authority (Jesinoski) required reconsideration of the rescission defense.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Naifeh’s written TILA notice effected rescission without filing suit | U.S. Bank: rescission was not effected by notice alone here; borrower must litigate or creditor must acquiesce; trial court correctly rejected automatic rescission | Naifeh: timely written rescission under TILA/Jesinoski automatically rescinded loan and voided security interest, so foreclosure and subsequent instruments are void | Vacated and remanded: Jesinoski means notice within 3 years can effectuate rescission, but court may decide validity/timeliness of notice and may condition rescission (e.g., require tender); trial court must adjudicate rescission defense on remand |
| Whether omission/dismissal of quiet title claim barred cancellation claims | U.S. Bank: cancellation of instruments is an independent equitable claim supported by fraud evidence; omission did not preclude relief | Appellants: cancellation is ancillary to quiet title and dismissal of quiet title precludes cancellation and has preclusive effect | Rejected: cancellation under Civ. Code §3412 is independent and was adequately pleaded/evidenced; omission/dismissal of quiet title did not bar cancellation claims |
| Whether U.S. Bank had standing / interest in the property | U.S. Bank: showed chain of assignments, trustee’s deed upon sale to BofA and succession to U.S. Bank gave it interest and standing | Appellants: no original note, assignment/securitization defects (PSA closing date) make BofA/U.S. Bank interest void or contestable | Rejected: substantial evidence supported plaintiff’s interest; alleged PSA timing defects would render assignment voidable (not void) and appellants lacked standing to attack PSA terms |
| Whether various trial-court procedural rulings were erroneous (judgment on pleadings, default relief, cross-complaint) | U.S. Bank: rulings were within discretion; any errors were harmless because plaintiff proved case at trial | Appellants: rulings were prejudicial and denied procedural rights | Rejected: appellate court found no prejudicial abuse of discretion; remand limited to rescission issues only |
Key Cases Cited
- Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (U.S. 2015) (borrower need only notify creditor within three years to effect rescission; no separate requirement to file suit within that period)
- Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003) (court may condition rescission and require tender where creditor contests rescission)
- Merritt v. Countrywide Financial Corp., 759 F.3d 1023 (9th Cir. 2014) (rescission notice can automatically rescind when creditor acquiesces; courts retain equitable power to modify rescission procedures)
- Williams v. Homestake Mortgage Co., 968 F.2d 1137 (11th Cir. 1992) (rescission occurs upon valid notice; courts may impose equitable conditions when ordering rescission)
- Yvanova v. New Century Mortgage Corp., 62 Cal.4th 919 (Cal. 2016) (borrower lacks standing to challenge an assignment on PSA grounds in many circumstances; discusses void vs. voidable assignments)
- Glaski v. Bank of America, 218 Cal.App.4th 1079 (Cal. Ct. App. 2013) (discusses challenge to assignment timing under PSA; limited and later-distinguished authority)