MERS v JACOBY

8/6/2019 MERS v JACOBY

1/22

Filed 8/8/11 Mortgage Electronic Registration Systems v. Jacoby CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 forpublication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publicationor ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

MORTGAGE ELECTRONICREGISTRATION SYSTEMS et al.,

Plaintiffs, Cross-defendants andAppellants,

v.

SCOTT JACOBY,

Defendant, Cross-complainant andRespondent.

D054010

(Super. Ct. No. GIC828794)

APPEAL from a judgment of the Superior Court of San Diego County, Judith F.

Hayes, Judge. Affirmed.

Scott Jacoby purchased property previously owned by J. Ross White-Sorensen at a

court-ordered judicial foreclosure sale. White-Sorensen and several entities with interests

in two extinguished deeds of trusts brought an action against Jacoby, seeking to

invalidate the sale and/or obtain declaratory relief providing that Jacoby holds the

property subject to these deeds of trust. Jacoby cross-complained seeking to quiet title to


2/22

2

the property and for a judgment that he is the owner of unencumbered title to the

property.

The court granted Jacoby's summary judgment motion on the claims against him

and on his affirmative quiet title claim. White-Sorensen and two entities named on the

extinguished deeds of trust appeal from the judgment.1 We affirm.

FACTUAL AND PROCEDURAL SUMMARY

Overview

This appeal arises from an action filed by Linda Nacif against White-Sorensen

resulting in a default judgment against White-Sorensen. In the default judgment, the

court found Nacif proved her claims and ordered a judicial foreclosure sale of White-

Sorensen's property. The final judgment stated the proceeds of the sale shall be paid to

Nacif for the judgment amount ($209,187 plus interest), and any surplus shall be paid to

junior secured lenders who recorded interests afterNacif recorded her lis pendens.

Accredited was a lienholder who had recorded two deeds of trust securing loans to

White-Sorensen afterNacif filed her lis pendens.

At the court-ordered judicial foreclosure sale conducted by the San Diego County

Sheriff's Office (Sheriff), Jacoby was the highest bidder at $222,524. Pursuant to the

1 These two entities are nominee/beneficiary Mortgage Electronic RegistrationSystems (MERS) and trustee First American Title Company (First American). Theoriginal creditor/beneficiary on the deeds of trust, Accredited Home Lenders, Inc., alsoappealed from the judgment, but later filed for Chapter 11 bankruptcy. We have sincegranted Accredited's motion to be dismissed from the appeal. For ease of reference, wecollectively refer to Accredited, First American, and MERS as the Accredited parties.We collectively refer to White-Sorensen, First American, and MERS as appellants.


3/22

3

court's judgment, the Sheriff paid this amount to Nacif and there was no remaining

surplus. The Sheriff transferred title of the property to Jacoby, and Accredited's later-

recorded deeds of trust were extinguished, leaving Accredited with unsecured notes

against White-Sorensen. (Code Civ. Proc., 701.630.)2

As explained in more detail below, White-Sorensen and the Accredited parties

then filed claims against Jacoby seeking to set aside the sale or seeking an order that

Jacoby purchased the property subject to Accredited's deeds of trust. Jacoby filed a

cross-complaint seeking to quiet title to his property.

Jacoby moved for summary judgment, arguing his purchase at the court-ordered

sale was conclusive and could not be challenged. In opposing the motion, the Accredited

parties argued the facts showed that before he bid on the property Jacoby had notice of

their deeds of trust and that they were in the process of challenging the default judgment

in the Nacif action. The trial court found that even assuming Jacoby was aware of these

facts, Jacoby was entitled to quiet title to the property because the statutes provide a

judicial foreclosure sale to a party other than the judgment creditor is "absolute" and

"may not be set aside for any reason." ( 701.680, subd. (a).) The court further found

Jacoby did not purchase the property subject to Accredited's deeds of trust because these

instruments were not recorded when Nacif commenced her action and recorded the lis

pendens. The court thus granted Jacoby summary judgment. As explained below, we

agree with the court's conclusions and affirm the judgment.

2 All further statutory references are to the Code of Civil Procedure.


4/22

4

We note that we are concurrently filing an opinion in a companion case involving

appellants' disputes with Nacif. (Nacif v. White-Sorensen (August 8, 2011, D056993

(Nacif II).) We also previously filed an opinion involving Accredited's claims against

Nacif. (Accredited Home Lenders, Inc. v. Nacif(July 26, 2007, D048938) (Nacif I).) For

clarity, we have made an effort to include facts in this opinion only to the extent they are

relevant to the issues and/or appellate contentions asserted in this (theJacoby) case. A

more detailed background of the underlying factual circumstances can be found in the

Nacif IandNacif IIopinions.

Summary ofEvents Leading to Judicial Foreclosure Sale

In April 2004, Nacif filed an action against White-Sorensen, claiming White-

Sorensen breached a contract to repay a loan and sought to impose an equitable mortgage

on his property (the White-Sorensen property). On the same day, Nacif recorded a lis

pendens on the White-Sorensen property, giving notice of her equitable mortgage claim

affecting the property.

Five months later, in September 2004, Accredited recorded two deeds of trust on

the White-Sorensen property securing Accredited's $675,000 loan to White-Sorensen.

The deeds of trust identified First American as the trustee and MERS as the nominee and

nominal beneficiary. White-Sorensen obtained this refinancing loan to fund a settlement

with Nacif. Although Nacif and White-Sorensen signed a settlement agreement in

August 2004, Nacif later amended her complaint and continued her action against White-

Sorensen based on allegations that he engaged in fraud in inducing her to agree to the

settlement. White-Sorensen then defaulted on the amended complaint.


5/22

5

In June 2005, the court entered a $209,187 default judgment against White-

Sorensen on Nacif's amended complaint. The court also imposed an equitable mortgage

on the White-Sorensen property and ordered the property sold at a foreclosure sale. The

amended final judgment, dated July 8, 2005, stated that all interests in the White-

Sorensen property recorded "subsequent to the filing of notice of the pendency of this

action" would be extinguished after the sale of the property. (Italics added.)

Specifically, the judgment stated: "[A]fter delivery of a deed by the levying officer to the

purchaser at the sale, [White-Sorensen] and . . . all persons claiming to have acquired any

estate or interest in the property subsequent to the filing of notice of the pendency of this

action with the county recorder, are forever barred and foreclosed from all equity of

redemption in, and claim to, the property and every part of it." (Italics added.)

Two weeks later, on July 22, 2005, the trustee on Accredited's deeds of trust

recorded a notice of trustee's sale on the White-Sorensen property, based on claims that

White-Sorensen had failed to make required payments on the $675,000 refinance loan.

On August 5, 2005, Nacif recorded an abstract of the July 8, 2005 final judgment,

giving notice that the court had determined her judgment lien was superior to all interests

in the property recorded after April 2004.

On August 12, 2005, the superior court issued a writ of execution on the July 8,

2005 final judgment.

On September 2, 2005, the Sheriff received instructions to levy upon the White-

Sorensen property with a copy of the writ of sale. One week later, on September 9, the

Sheriff recorded a Notice of Levy and a copy of the writ of sale.


6/22

6

At some point between August 2005 and October 2005, Accredited learned of

Nacif's abstract of judgment which indicated that all liens (including Accredited's deeds

of trust) would be extinguished by the court-ordered judicial foreclosure sale. Based on

this information, Accredited retained White-Sorensen's former counsel (S. Todd Neal) to

"immediately file a Complaint for Declaratory Relief against Nacif on behalf of

Accredited and MERS to protect the priority of the deeds of trust."

In November 2005, Accredited filed a separate lawsuit against Nacif seeking a

declaration that its deeds of trust had priority over Nacif's July 8, 2005 final judgment. In

January 2006, Accredited filed a motion in Nacif's case against White-Sorensen, seeking

to vacate the entry of default and default judgment against White-Sorensen and for leave

to intervene in this action. Superior Court Judge Linda Quinn presided over the

Nacif/White-Sorensen action.

While Accredited's motions were pending in the Nacif/White-Sorensen action, on

February 23, 2006, the Sheriff held a judicial foreclosure sale. Jacoby, a third party,

offered the highest bid at $222,524. Based on Jacoby's bid, the Sheriff determined

Jacoby was the purchaser of the property. One of Accredited's attorneys (Neal) did not

receive prior notice of the precise date of the sale.

Two weeks after the sale, on March 10, 2006, Judge Quinn issued a tentative

ruling granting Accredited's motion to set aside the White-Sorensen entry of default and

default judgment, and granting Accredited's motion for leave to file a complaint in

intervention.


7/22

7

On March 15, 2006, the Sheriff recorded a "Sheriff's Deed Under Execution"

reflecting the conveyance of the White-Sorensen property to Jacoby.

On March 22, 2006, Judge Quinn confirmed the tentative ruling and entered an

order vacating the default and the default judgment against White-Sorensen to permit

Accredited to litigate its claims against Nacif. Nacif appealed. In her appeal, Nacif

conceded Accredited's rights to litigate its disputes with her in the Nacif/White-Sorensen

action, but argued that Judge Quinn erred in vacating the entry of default and default

judgment with respect to White-Sorensen. (Nacif I, supra, D048938.)

Claims Between Appellants and Jacoby

While Nacif's appeal was pending, in May 2006, Accredited, White-Sorensen and

MERS filed a complaint in intervention against Jacoby, seeking declaratory relief that the

"Sheriff [never had], and did not pass, good title" of the White-Sorensen property to

Jacoby; Jacoby was "not a good faith purchaser for value"; and Jacoby did not acquire

any valid interest in the property. These parties alternatively sought a declaration that

Jacoby's ownership of the property was subject to Accredited's deeds of trust. The next

month, Jacoby filed a cross-complaint seeking to quiet title against the Accredited parties

and White-Sorensen, and seeking to confirm the validity of the Sheriff's sale.

While these pleadings were pending, in July 2007, this court filed its decision

reversing in part and affirming in part the court's order vacating the entry of default and

default judgment. (Nacif I, supra, D048938.) We held the court properly vacated the

judgment because the judgment affected Accredited's rights, and the court would be

required to determine the appropriate remedies (if any) as between Accredited and Nacif.


8/22

8

(Ibid.) However, we reversed the portion of the judgment vacating the entry of default as

to White-Sorensen, explaining that an entry of default has independent significance and is

not void merely because the default judgment is later vacated. (Ibid.)

Summary Judgment Proceedings

In March 2008, Jacoby moved for summary judgment on the intervention

complaint and on his cross-complaint against White-Sorensen and the Accredited parties.

In support, he presented the evidence summarized above pertaining to the official actions

leading to his purchase of the White-Sorensen property at the Sheriff's sale. Jacoby

argued that because he was a third party purchaser at a court-ordered judicial foreclosure

sale pursuant to a court judgment, the sale was final and was not subject to challenge "for

any reason." (See 701.680, subd. (a).)

In opposing the summary judgment, appellants did not dispute the chronology of

events presented by Jacoby, but submitted additional facts in an attempt to create a basis

for an exception to the general finality rules pertaining to judicial foreclosure sales.

First, appellants argued that the sale could be set aside because Jacoby was not a

good faith purchaser based on facts showing: (1) an appraisal in 2004 (about 18 months

before the sale) valued the White-Sorensen property at $690,000 and Jacoby purchased

the property for $222,524; (2) before the sale Jacoby knew of Nacif's lis pendens and that

Accredited had two deeds of trust on the property; and (3) before the sale Jacoby asked

Nacif's attorney about the priority of Accredited's liens, and Nacif's attorney responded

that the Accredited parties had filed a motion challenging the White-Sorensen default

judgment.


9/22

9

Second, appellants presented the declaration of one of their attorneys (Neal), who

stated that "Nacif proceeded with [the foreclosure] sale [without] provid[ing] any notice

to me that a sale of the property was pending." (Italics added.)

Third, appellants presented the declarations of White-Sorensen and Neal Melton

(Accredited's mortgage broker/agent), who each discussed the events leading to the

court's July 8, 2005 amended default judgment against White-Sorensen, including Nacif's

execution of the 2004 settlement agreement with White-Sorensen and her failure to repay

the settlement funds before filing her amended complaint against White-Sorensen.

Melton also asserted that "Accredited would not have refinanced the property without

Ms. Nacif's written assurances that the lis pendens would be released upon payment of

the $115,000."

Court's Ruling on Jacoby's Summary Judgment Motion

After considering the parties' memoranda and supporting submissions, the court

granted summary judgment in favor of Jacoby. The court found the applicable statutes

are "crystal clear" that when a third party purchases property at a judicial foreclosure sale,

the sale "may not be set aside 'for any reason.' " The court also rejected appellants'

arguments that Jacoby held the property subject to Accredited's deeds of trust, finding

these arguments were not legally supported. The court thereafter entered a judgment that

Jacoby is the "owner of unencumbered title" of the White-Sorensen property, and that the

opposing parties had "no right, title, estate, lien or interest in the Property adverse to"

Jacoby.


10/22

10

White-Sorensen and the Accredited parties filed an appeal. This court later stayed

the appeal after Accredited advised the court it had filed for bankruptcy. About one year

later, Accredited and appellants requested that Accredited be dismissed from the appeal

and"MERS and First American be substituted as appellants in Accredited's place." We

granted the request that Accredited be dismissed from the appeal, but denied the request

that MERS and First American be substituted in Accredited's place. We found that the

documents presented did not support a basis for a substitution in the case, but noted that

MERS and First American were existing appellants in the appeal.

DISCUSSION

I. Standard of Review

Jacoby moved for summary judgment on his affirmative pleadings and on the

claims asserted against him.

When a defendantmoves for summary judgment, the defendant "bears the burden

of persuasion that there is no triable issue of material fact and that [the party] is entitled

to judgment as a matter of law." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826,

850 (Aguilar).) A defendant satisfies this burden by showing one or more elements of the

cause of action cannot be established or that there is a complete defense to that cause of

action. (Ibid.)

When aplaintiff or cross-complainantmoves for summary judgment on its claims,

the party bears the burden of proving each elementof the cause of action entitling the

party to judgment on that cause of action. "[I]f a plaintiff who would bear the burden of

proof by a preponderance of evidence at trial moves for summary judgment, [the


11/22

11

plaintiff] must present evidence that would require a reasonable trier of fact to find any

underlying material fact more likely than nototherwise, he would not be entitled to

judgment as a matter of law, but would have to present his evidence to a trier of fact."

(Aguilar, supra, 25 Cal.4th at p. 851.)

If the moving party fails to present sufficient, admissible evidence to meet its

initial burden, the court must deny the summary judgment motion. This rule applies even

if the opposing party does not object to the moving party's evidence, presents defective

declarations, or fails to present a sufficient counter showing. (Rincon v. Burbank Unified

School Dist. (1986) 178 Cal.App.3d 949, 954-956.) However, once a party meets its

initial summary judgment burden, " 'the burden shifts to the [opposing party] . . . to show

that a triable issue of one or more material facts exists as to that cause of action or a

defense thereto.' " (Aguilar,supra, 25 Cal.4th at p. 849.) The opposing party may not

rely upon the mere allegations or denials of its pleading to show the existence of a triable

issue of material fact. (Ibid.; see Chaknova v. Wilbur-Ellis Co. (1999) 69 Cal.App.4th

962, 974-975.)

We review a summary judgment de novo. (Buss v. Superior Court(1997) 16

Cal.4th 35, 60.) We assume the role of the trial court and redetermine the merits of the

motion. In doing so, we view the factual record in the light most favorable to appellants,

the parties opposing the summary judgment. (See Garcia v. W&W Community

Development, Inc. (2010) 186 Cal.App.4th 1038, 1041.) We strictly scrutinize the

moving party's papers so that all doubts as to the existence of any material triable issues

of fact are resolved in favor of the party opposing summary judgment. (Barber v. Marina


12/22

12

Sailing, Inc. (1995) 36 Cal.App.4th 558, 562.) "Because a summary judgment denies the

adversary party a trial, [the motion] should be granted with caution." (Colores v. Board

of Trustees (2003) 105 Cal.App.4th 1293, 1305.)

II. No Legal Basis to Set Aside Jacoby's Purchase of White-Sorensen Property

Under section 701.680, a judicial foreclosure sale to a party other than the

beneficiary is "absolute" subject only to the debtor's right of redemption, and the sale

"may not be set aside for any reason." ( 701.680, subd. (a), italics added; seeArrow

Sand & Gravel, Inc. v. Superior Court(1985) 38 Cal.3d 884, 890 (Arrow Sand) [a

judicial foreclosure "sale 'is absolute and may not be set aside for any reason' "];

Amalgamated Bank v. Superior Court(2007) 149 Cal.App.4th 1003, 1018-1019 ["By

purchasing the property at the sheriff's auction, [the third party] became fee owner,

subject only to the [debtor's] right of redemption"]; First Federal Bank of California v.

Fegen (2005) 131 Cal.App.4th 798, 800-801 ["the sale is 'absolute and may not be set

aside for any reason' "]; Gonzalez v. Toews (2003) 111 Cal.App.4th 977, 981 ["section

701.680 is crystal clearit states that [judicial foreclosure] sales are absolute and may

not be set aside 'for any reason' unless the judgment creditor was the purchaser"]; see also

1 Bernhardt, Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation (Cont.Ed.Bar

4th ed. 2011) 3.84, pp. 237-238 [a judicial foreclosure sale "has finality and may not be

set aside for any reason"]; 1 Greenwald & Asimow, Cal. Practice Guide: Real Property

Transactions (The Rutter Group 2010) 6:544.10, p. 6-112.11 ["judicial foreclosure sale

to a party other than the beneficiary is 'absolute,' subject only to the trustor's right of

redemption"].)


13/22

13

The only exception to this rule is that a judgment debtor may challenge the sale if:

(1) "the purchaser at the sale [was] the judgment creditor" and (2) "the sale was improper

because of irregularities in the proceedings, because the property sold was not subject to

execution, or for any other reason . . . ." ( 701.680, subds. (a), (c)(1); see First Federal

Bank of California v. Fegen, supra, 131 Cal.App.4th at pp. 800-801.) This exception is

inapplicable here because the purchaser at the sale was a third party (Jacoby) and not the

judgment creditor (Nacif).

In seeking to avoid this rule, respondents rely on two cases that were decided long

before section 701.680 was enacted. (SeeRiley v. Martinelli (1893) 97 Cal. 575;Hansen

v. G & G Trucking Co. (1965) 236 Cal.App.2d 481.) In 1982, the Legislature enacted

section 701.680 as part of a comprehensive revision to the enforcement of judgments law,

seeking to protect the purchaser's title and ensure the finality of judicial foreclosure sales,

and thus encourage fair bidding at judicial foreclosure sales. (SeeArrow Sand, supra, 38

Cal.3d at pp. 890-891;Amalgamated Bank v. Superior Court, supra, 149 CalApp.4th at p.

1018; Gonzalez v. Toews, supra, 111 Cal.App.4th at p. 980.) Because the pre-1982 law

did not contain provisions similar to section 701.680 barring all challenges to judicial

foreclosure sales,Riley andHansen, decided in 1893 and 1965, are unhelpful here.

Appellants alternatively contend the sale may be set aside because Jacoby was not

a good faith purchaser based on facts showing that an appraisal in 2004 valued the

property at $690,000 and Jacoby purchased the property for $222,524. However, under

section 701.680, subdivision (a), a court cannot set aside a judicial foreclosure sale to a

third party based on the equities of the situation, including a substantial disparity between


14/22

14

the fair market value and the sums successfully bid. (SeeAmalgamated Bank v. Superior

Court,supra, 149 Cal.App.4th at pp. 1008, 1009, 1018 [citing section 701.680, court

declined to set aside a third party's $2,000 successful bid for 57 acres of property with an

approximate value of $6 million].)

Appellants additionally contend that if Jacoby had conducted a reasonable

investigation, he would have discovered that appellants had intervened in the action and

had moved to set aside the equitable judgment. However, as recognized by the California

Supreme Court, there is no exception to section 701.680, subdivision (a) based on facts

showing the purchaser was aware of an existing challenge to the underlying judicial

foreclosure judgment. (SeeArrow Sand, supra, 38 Cal.3d at pp. 887-891.) InArrow

Sand, the issue was whether the fact that an appealing defendanthas no statutory right to

record a lis pendens pertaining to an appeal of a judicial foreclosure judgment violates the

defendant's equal protection rights because the applicable statutes permitplaintiffs and

cross-complainants to record a lis pendens. (Id. at p. 887.) Relying on section 701.680,

subdivision (a), the high court found no denial of equal protection because a lis pendens

giving notice of an appeal of a judicial foreclosure judgment has no practical effect.

(Arrow Sand, supra, at pp. 890-891.) The court explained that section 701.680,

subdivision (a) "completely eliminate[s] the possibility that judicial sales [can] be set

aside on reversal of the underlying judgment . . . ." (Id. at p. 890.) Thus, "unless a

defendant titleholder seeks and receives a statutory stay of enforcement or supersedeas

from a higher court, the judicial sale may proceed" (id. at p. 891), and thus "[a] recorded

notice of lis pendens would not serve to vitiate the title of a purchaser at a judicial


15/22

15

foreclosure sale" (id. at p. 887). Under this holding, the fact that a third party purchaser

knew of an existing challenge to a judicial foreclosure judgment is not a valid basis to

later set aside the court-ordered judicial foreclosure sale.

We also reject appellants' argument that they had a right to set aside the sale

because the legislative history of section 701.680, subdivision (a) suggests the purpose of

this code section was to limit a debtor's right of redemption and there is no showing the

statute was intended to limit challenges to a third party purchase. In interpreting statutory

language, the goal is to determine the legislative intent. (SeeEsberg v. Union Oil Co.

(2002) 28 Cal.4th 262, 268.) To determine legislative intent, we must turnfirstto the

words of the statute, giving them their usual and ordinary meaning. (Ibid.) When the

language of a statute is clear, a court should enforce the statute according to these terms.

(Ibid.) A court looks to legislative history only when the statute is ambiguous. (Ibid.; see

Niles Freeman Equipment v. Joseph (2008) 161 Cal.App.4th 765, 780.)

Here, the statutory language is clear: section 701.680, subdivision (a) bars all

challenges to a third party purchase at a judicial foreclosure sale. (SeeAmalgamated

Bank v. Superior Court, supra, 149 Cal.App.4th at p. 1018.) Thus, even if the legislative

history shows the Legislature was concerned primarily with the prior rule that provided

debtors with expansive redemption rights and enacted the new legislation to limit these

rights, this does not mean the Legislature did not also intend to bar other types of

challenges to a purchase at a judicial foreclosure sale. In this regard, appellants' reliance

on Yancey v. Fink(1991) 226 Cal.App.3d 1334 is misplaced. Although the Yancey court


16/22

16

discussed section 701.680, subdivision (a) in the context of a debtor's statutory

redemption rights, this does not mean the statute is limited to this subject matter.

III. Jacoby's Interests Are Not Subject to Accredited's Deeds of Trust

Appellants also contend the court erred in quieting title in favor of Jacoby because

Jacoby's interest in the property is subject to Accredited's two deeds of trust under section

726, subdivision (c). This code section states in relevant part: "Notwithstanding Section

701.630, the sale of the encumbered real property . . . does not affect the interest of a

person who . . . has a lien thereon, if the conveyance or lien appears of record in the

proper office at the time of the commencement of the action and the person holding the

recorded conveyance or lien is not made a party to the action." (Italics added.) Section

701.630 provides that: "If property is sold pursuant to [a judicial foreclosure sale], the

lien under which it is sold [and] any liens subordinate thereto . . . on the property sold are

extinguished."

Under these statutes, the general rule is that a judicial foreclosure sale extinguishes

the lien under which the property is sold and all subordinate liens. (SeeLittle v.

Community Bank(1991) 234 Cal.App.3d 355, 360;Mitchell v. Alpha Hardware & Supply

Co. (1935) 7 Cal.App.2d 52, 57.) However, an exception to this rule applies if the

subordinate lienholder was not made a party to the judicial foreclosure action andthis

lien "appear[ed] of record . . . at the time of the commencement of the action." ( 726,

subd. (c), italics added.) If these requirements are satisfied, the purchaser holds the

property subject to the subordinate liens.


17/22

17

In this case, the undisputed facts show Accredited's deeds of trust were not

recorded in April 2004 when Nacif first commenced her action against White-Sorensen.

Thus, the section 726, subdivision (c) exception does not apply. Appellants nonetheless

urge us to hold that this statutory exception governs because Nacif filed the amended

complaintafter Accredited's deeds of trust were recorded. They posit that because the

amended complaint did not "relate back" to the original complaint, the amended

complaintand not the original complaintshould be the operative pleading for

purposes of determining when the action commencedunder the section 726 subdivision

(c) exception.

This argument is unsupported. First, there is no basis for superimposing a statute-

of-limitations relation-back theory onto section 726, subdivision (c). Section 726,

subdivision (c) reflects a legislative judgment that a party who records a lien on property

afterthe filing of a lis pendens has the means to protect itself. A lis pendens imparts

constructive notice of an underlying judicial foreclosure action (and of the named parties

in the action) to all subsequent encumbrancers. (See 405.24.) Thus, a subsequently-

recording lienholder has the information necessary to protect his or her rights by

intervening in the action and seeking a stay of the foreclosure sale and/or participating at

the foreclosure sale. (SeeArrow Sand, supra, 38 Cal.3d at p. 891.)

Under the statutory language and this underlying legislative policy, the

commencement of the judicial foreclosure action, and not the filing of an amended

complaint, is the critical trigger date for determining a lienholder's interests. If a junior

lienholder records an interest after a lis pendens is recorded, these parties "need not be


18/22

18

joined as defendants as long as the plaintiff records and serves a lis pendens immediately

on filing the complaint. The lis pendens binds such persons as effectively as if they had

been joined in the action." (1 Bernhardt, Cal. Mortgages, Deeds of Trust and Foreclosure

Litigation, supra, 3.34, p. 205.)

Moreover, even assuming the relation-back theory was relevant to the application

of section 726, subdivision (c) in this case, the amended complaint didrelate back to the

original complaint, at least with respect to the judicial foreclosure claim. Under the

relation-back doctrine, an amendment relates back to an original claim for purposes of the

statute of limitations if the amendment: (1) rests on the same general set of facts; (2)

involves the same injury; and (3) refers to the same instrumentality. (Norgart v. Upjohn

Co. (1999) 21 Cal.4th 383, 408-409;Barrington v. A. H. Robins Co. (1985) 39 Cal.3d

146, 150-151.) In determining whether the relation-back doctrine applies, the critical

inquiry is whether the defendant had adequate notice of the claim based on the original

pleading. (See Garrison v. Board of Directors (1995) 36 Cal.App.4th 1670, 1678.)

In the original complaint, filed in April 2004, Nacif sued White-Sorensen for

breach of contract and sought an order permitting her to foreclose on an equitable

mortgage on the White-Sorensen property. The caption on this original complaint stated:

"COMPLAINT TO FORECLOSE UNDER EQUITABLE MORTGAGE." The same day

that she filed this complaint, Nacif recorded a lis pendens on the White-Sorensen

property, giving notice of this foreclosure action.

In the amended complaint filed in November 2004, Nacifreallegedher claims

against White-Sorensen for breach of the loan agreement and again sought an equitable


19/22

19

mortgage/judicial foreclosure of White-Sorensen's property. She also added new fraud

allegations pertaining to the settlement. The only substantive difference between the

original complaint and the first amended complaint with respect to the equitable

mortgage/judicial foreclosure cause of action, is that Nacif alleged she had been given a

partial payment ($115,000), and thus that she was seeking only the remaining portion of

the secured debt.

On this record, Nacif's first amended complaint related back to the original

complaint, at least with respect to the claim at issue here (the breach of contract claim

seeking to impose an equitable mortgage and a judicial foreclosure sale). The only

factual difference between the complaints on this claim was the $115,000 payment made

by White-Sorensen towards his debt. Although this payment may have raised legal issues

regarding Nacif's ability to enforce the contract (seeMyerchin v. Family Benefits, Inc.

(2008) 162 Cal.App.4th 1526), this new legal issue did not preclude a finding that the

Accredited parties had notice of the equitable mortgage claim when they recorded their

deeds of trust.

Appellants argue that under the unique facts of this case, we should interpret

section 726, subdivision (c) to mean that Nacif's amended complaint was the

"commencement" of the action because Nacif benefited from Accredited's funding of her

initial settlement with White-Sorensen and there were facts showing she wrongly refused

to dismiss the complaint and withdraw the lis pendens. However, under the statutory

scheme, the issues regarding the propriety of Nacif's conduct vis--vis Accredited does

not affect the rights of Jacoby, who was a third party purchaser. Moreover, the


20/22

20

undisputed facts show that although Accredited may have disagreed with Nacif's actions,

the Accredited parties had actual knowledge of Nacif's continuing lawsuit and judgment

against White-Sorensen and of the fact that Nacif never withdrew the lis pendens.

Accredited's counsel acknowledged in the proceedings below that based on this

knowledge, the Accredited parties filed a declaratory relief action against Nacif and

petitioned to intervene in Nacif's continuing action against White-Sorensen before the

judicial foreclosure sale took place. Under these circumstances, the Accredited parties

had the ability to protect themselves by filing for a stay of the judicial foreclosure sale

and/or seeking some form of preliminary injunctive relief.

Finally, we find unavailing appellants' challenge to the trial court's statement at the

conclusion of its summary judgment order that "the Accredited parties had ample notice

of the pending judicial foreclosure sale, but took no action to protect its interests and did

not seek a stay of the proceedings." Appellants assert that because in moving for

summary judgment Jacoby did not specifically rely on the evidence that the Accredited

parties had notice of the pending foreclosure sale, the court erred in relying upon this

fact. However, because the undisputed evidence established that Accredited had notice

of the "pending judicial foreclosure sale" and had challenged the pending sale through a

declaratory relief action, the court's observation was appropriate.

Appellants argue that this notice finding contradicts statements in theNacif I

decision in which we observed that the trial court had a "sufficient factual basis" to

conclude that Accredited did not unreasonably delay in filing its motion to vacate the

default judgment and noted that the trial court could have credited evidence that


21/22

21

Accredited denied receiving timely notice of the judgment or of the sale of the property.

(Nacif I, supra, D048938.) These statements, however, were directed to Accredited's

notice of the precise date of the sale. The fact that Accredited may not have had actual

knowledge of the sale date is different from a conclusion that Accredited (and the parties

asserting rights based on Accredited's deeds of trust) knew or should have known that a

sale waspending and they needed to act if they wanted to prevent a sale. (Ibid.)

Moreover, our statement in theNacif Idecision was based on the limited record before

us. In theNacif Iopinion, we admonished that we were not intending to rule on any of

the substantive issues pertaining to other matters in the case, including Nacif's lis pendens

and the effect of the lis pendens on the rights of the other parties. (Ibid.) Under these

circumstances, we find unpersuasive appellants' attempt to use a statement from theNacif

Iopinion to suggest they had no notice of the pending foreclosure sale, when the

undisputed facts show they did know of a pending sale and/or they had constructive

knowledge of the pending sale based on recorded documents and their involvement in the

lawsuit.


22/22

22

DISPOSITION

Judgment affirmed. Appellants to bear respondent's costs on appeal.

HALLER, Acting P. J.

WE CONCUR:

MCINTYRE, J.

AARON, J.

Documents

MERS v JACOBY