Bank of >East
Asia v. Javaherian





















Filed 1/18/13 The
Bank of East Asia v. Javaherian CA2/5

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OFFICIAL REPORTS

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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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115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



SECOND APPELLATE DISTRICT



DIVISION FIVE






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THE BANK OF EAST ASIA (U.S.A.) N.A., Plaintiff, Cross-defendant and Appellant, v. FARIBA JAVAHERIAN et al., Defendants, Cross-complainants and Respondents.

B242079 (Los Angeles County Super. Ct. No. BC459344)

APPEAL
from a judgment of the Superior Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County, Michael L. Stern, Judge. Reversed with directions.

Anderson,
McPharlin & Conners, Jesse S. Hernandez and Vanessa H. Widener for
Plaintiff, Cross-defendant and Appellant.

Kousha
Berokim for Defendants, Cross-complainants and Respondents.



_______________________________

Plaintiff, cross-defendant, and
appellant The Bank of East Asia (U.S.A.), N.A., appeals from a judgment
following an order granting summary judgment in favor of defendants,
cross-complainants, and respondents Fariba Javaherian and Ierra Venture, LLC,
in this action arising out of two deeds of trust on the same properties. The Bank contends that its deed of trust is
entitled to priority, because it was recorded before Javaherian’s deed of trust was
indexed. We agree and reverse with
directions.



FACTS



On
December 23,
2004, Javaherian loaned $2.55 million to
Chabad of California (COC). On February 7, 2005, Javaherian made a second loan to COC in the amount of $1.5
million. Saeed Kohanoff also made loans
to COC totaling $900,000.

On
February 7,
2005, Rabbi Boruch Cunin executed a deed of
trust on behalf of Chabad Housing Corporation encumbering two real properties
in Los Angeles to secure repayment of the loans totaling $4.95 million from
Javaherian and Kohanoff. Javaherian
declared that she required a first priority deed of trust, but Cunin declared
that he told Javaherian and Kohanoff their deed of trust would need to be
subordinated to a loan that Chabad Housing was negotiating with the Bank. On February 10, 2005,
Chabad Housing sent the February 7, 2005 deed of trust
to the Los Angeles County Recorder’s Office for recordation.

On
February 28,
2005, Cunin executed a href="http://www.fearnotlaw.com/">deed of trust encumbering the same
properties to secure repayment of a loan from the Bank to Chabad Housing in the
amount of $2.2 million. The Bank’s loan
to Chabad Housing was made on the condition that the Bank would have a first
priority deed of trust on the property.
The Bank was not aware of Javaherian’s prior loans or the February 7, 2005 deed of trust. Javaherian
has declared that she was not aware of the deed of trust executed in favor of
the Bank.

The
February 7,
2005 deed of trust was recorded in the
recorder’s office on March 2, 2005. The Bank’s deed of trust was recorded in the
recorder’s office on March 3, 2005. The February 7, 2005
deed of trust was indexed in the recorder’s office records on March 5, 2005, and the Bank’s deed of trust was indexed on March 7, 2005.

COC
repaid $500,000 to Kohanoff and provided a new unsecured note for the remainder
of Kohanoff’s loan. On April 1, 2005, COC executed a new note in favor of Javaherian in the amount of
$4,050,000, which was the total amount of her loans. The April 1, 2005
note superseded and voided any previous notes between COC and Javaherian. On December 26, 2006, COC executed a loan modification agreement extending the due date
of the April 1,
2005 note by one year and increasing the
interest rate from 9.75 percent to 12.5 percent. COC also executed a new deed of trust
securing repayment of the April 1, 2005 note, which was
recorded on January
27, 2006.



PROCEDURAL BACKGROUND



On
April 15, 2011, the Bank filed a complaint against Javaherian, Kohanoff, and
Chabad Housing for quiet title and declaratory relief. The Bank caused a notice of pending action to
be recorded on April 19, 2011.

Javaherian
is the President of Ierra. On May 26, 2011, Javaherian assigned the February 7, 2005
deed of trust to Ierra. Ierra conducted
a nonjudicial foreclosure sale on May 27, 2011, and
was the successful bidder for the properties.
Ierra’s successful bid was $1.7 million.

On
June 3, 2011, Javaherian, on behalf of Ierra, caused deeds of trust to be
recorded on the properties in favor of Vahid Vahdat and Saman Fakheri securing
repayment of loans totaling in excess of $3 million.

The
Bank added Vahdat, Fakheri, and Ierra to the complaint as Doe defendants. Javaherian and Ierra filed a cross-complaint
against COC, Cunin, the Bank, and other individuals. The causes of action alleged in the
cross-complaint against the Bank were for quiet title and declaratory relief.

On
November 21,
2011, the Bank filed a motion for summary
judgment, or in the alternative, summary adjudication, as to the quiet title
and declaratory relief causes of action.
The Bank argued that it was a bona fide encumbrancer, because it had no
notice of the Javaherian deed of trust that had not been indexed when the Bank
recorded its deed of trust. The Bank
also filed a motion for summary judgment of the cross-complaint.

Javaherian
and Ierra filed a motion for summary judgment on their cross-complaint of the
causes of action against the Bank for quiet title and declaratory relief. Javaherian and Ierra argued that Javaherian
was the first to record and the first to be indexed, and therefore, the February 7, 2005 deed of trust was entitled to priority. They opposed the Bank’s motions on the same
grounds.

The
Bank opposed Javaherian and Ierra’s motion for summary judgment and filed
replies as to its motions for summary judgment arguing that the Bank was
entitled to priority because it had no constructive notice of the February 7, 2005 deed of trust. In addition,
Javaherian’s deed of trust should lose priority because the December
modification of the Javaherian loan had a material adverse effect on junior
liens. Javaherian and Ierra filed a
reply arguing that the loan modification was not material and the loan was
exempt from usury laws.

On
May 30, 2012, the trial court entered an order granting Javaherian and Ierra’s
motion for summary judgment on the cross-complaint. The court found that there were no triable
issues of fact. The Bank was not a bona
fide encumbrancer for value, because the Javaherian deed of trust was recorded
and indexed prior to the Bank’s deed of trust being recorded and indexed. That same day, the court entered judgment
quieting title in favor of Javaherian and Ierra, subject to the deeds of trust
recorded in favor of Vahdat and Fakheri.

The
Bank filed a timely notice of appeal.



>DISCUSSION



Standard
of Review



“‘We review the grant of name="SR;5525">summary name="SR;5526">judgment de novo. [Citation.]
We make “an independent assessment of the correctness of the trial
court’s ruling, applying the same legal standard as the trial court in
determining whether there are any genuine issues of material fact or whether
the moving party is entitled to judgment as a matter of law.” [Citation.]
A defendant moving for summary judgment meets its burden of showing that
there is no merit to a cause of action by showing that one or more elements of
the cause of action cannot be established or that there is a complete defense
to that cause of action.
[Citation.] Once the defendant
has made such a showing, the burden
shifts back to the plaintiff to show that a triable issue of one or more
material facts exists as to that cause of action or as to a defense to the
cause of action. [Citation.]’ [Citation.]”
(Howard Entertainment, Inc. v.
Kudrow (2012) 208 Cal.App.4th 1102, 1113.)



Constructive Notice



The Bank
contends that its deed of trust has priority over the February 7, 2005 deed of trust, because the
Bank had no actual or constructive notice of the February 7, 2005 deed of trust when it received and recorded its deed
of trust. The Bank is correct.

In general,
the first conveyance of real property to be recorded assumes priority over
subsequently recorded conveyances. (>First Bank v. >East West Bank (2011) 199
Cal.App.4th 1309, 1313.) “An instrument
is deemed to be recorded when, being duly acknowledged or proved and certified,
it is deposited in the Recorder’s office, with the proper officer, for
record.” (Civ. Code, § 1170.)

“Although courts conflate the two duties, recording
and indexing are separate and distinct functions. [Citations.]”
(First Bank v. East West Bank,
supra, 199 Cal.App.4th at p. 1316.) Priority between instruments that are deemed
to have been recorded at the same time is not determined by indexing. (Id.
at p. 1317.) “[I]t would disrupt the
statutory scheme to make priority turn on the random act of indexing,
. . . especially where banks and title insurers have no influence over when the
recorder indexes trust
deeds.
[Citation.]” (>Ibid.)

However,
indexing determines whether a subsequent purchaser or encumbrancer is charged
with constructive notice. A property
conveyance is conclusive against the grantor and anyone claiming under the
grantor, “except a purchaser or incumbrancer who in good faith and for a
valuable consideration acquires a title or lien by an instrument that is first
duly recorded.” (Civ. Code,
§ 1107.) “It is well established
that a bona fide purchaser for value who acquires his interest in real property
without notice of another’s asserted rights in the property takes the property
free of such unknown rights.
[Citations.]” (>Hochstein v. Romero (1990) 219
Cal.App.3d 447, 451.) “‘“The elements of
bona fide purchase are payment of value, in good faith, and without actual or
constructive notice of another’s rights.
[Citation.]” [Citation.]’ [Citation.]
‘“The absence of notice is an essential requirement in order that one
may be regarded as a bona fide purchaser.”
[Citation.]’ [Citation.]” (First
Bank v. East West Bank, supra, 199
Cal.App.4th at pp. 1313-1314.)

A conveyance
of property “recorded as prescribed by law” gives constructive notice of its
contents to subsequent purchasers and mortgagees from the time that it is filed
with the recorder for record. (Civ.
Code, § 1213.) “[A] subsequent
purchaser obtains priority for a real property interest by (1) acquiring name="sp_7047_271">name="citeas((Cite_as:_199_Cal.App.4th_1309,_*">the interest as a bona fide
purchaser for valuable consideration with neither actual knowledge nor constructive notice of (2) a previously-created interest; and (3)
‘first duly record[ing]’ the interest, i.e., recording before the
previously-created interest is recorded.
[Citations.]” (>First Bank v. East West Bank, >supra, 199 Cal.App.4th at p. 1313,
italics omitted.)

“Constructive notice is a legal ‘ “fiction.” ’ [Citation.]
For constructive notice to be conclusively presumed, the instrument or
document must be ‘recorded as prescribed by law.’ [Citations.]
The phrase ‘recorded as prescribed by law’ means the instrument must be
indexed. [Citations] ‘ “A document not indexed as required
by statute (see Gov. Code, §§ 27230-27265), does not impart constructive notice
because it has not been recorded ‘as prescribed by law.’” [Citation.]’
[Citation.] For more than a
century it has been the law in California that a party does not have
constructive notice of a recorded instrument until that document has been
properly indexed so it can be located through a search of the public
records. [Citations.]” (First
Bank v. East West Bank, supra, 199
Cal.App.4th at p. 1314, footnotes omitted.)

“Stated
otherwise, constructive notice of an interest in real property is imparted by
the recording and proper indexing of an instrument in the public
records. [Citations.] The recording of a document does name="sp_4041_1315">not impart constructive notice;
‘[t]he operative event [for purposes of constructive notice] is actually the
indexing of the document[.]’
[Citation.]” (>First Bank v. East West Bank, >supra, 199 Cal.App.4th at pp.
1314-1315.)

The
undisputed facts show Javaherian’s interest in the properties was created first
and the Bank was a subsequent encumbrancer.
Although the February 7, 2005 deed was recorded first, it failed to
provide subsequent purchasers and encumbrancers with constructive notice until
it was indexed. Therefore, when the
Bank’s deed of trust was duly recorded, the Bank was not charged with
constructive notice of the prior deed of trust and the Bank’s interest is not
subject to the February 7, 2005 deed of trust.
The date that the Bank’s deed of trust was indexed is irrelevant,
because there is no notice issue concerning the Bank’s deed of trust. Between the two innocent parties in this
case, Javaherian was in the best position to protect her interest by promptly
recording the February 7, 2005 deed of trust and verifying that it had been
properly indexed. The judgment and order
granting summary judgment in favor of Javaherian and Ierra must be reversed.



DISPOSITION



The
judgment and the order granting summary judgment on the cross-complaint are
reversed. The trial court is directed to
enter a new and different order granting the Bank’s motions for summary
judgment of the complaint and cross-complaint as against Javaherian and
Ierra. Appellant The Bank of East Asia
(U.S.A.), N.A., is awarded its costs on appeal.





KRIEGLER,
J.





We concur:



TURNER,
P. J.





MOSK,
J.