Engel v. Mortgage Electronic Registration Systems

 

 

 

Filed 12/20/13 
Engel v. Mortgage Electronic Registration Systems CA2/1

 

 

 

 

 

>NOT TO BE PUBLISHED IN THE
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  This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115.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

 

SECOND APPELLATE DISTRICT

 

DIVISION ONE

 

 
>

DANIEL E. ENGEL,               Plaintiff and Appellant,               v.   MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,               Defendant and Respondent.

B244182         (Los Angeles County       Super. Ct. No. LC095221)

 

 

            APPEAL
from a judgment of the Superior Court of
Los Angeles County.  James A. Kaddo,
Judge.  Affirmed.

            Daniel
E. Engel, in pro. per., for Plaintiff and Appellant.

            Severson
& Werson, Jan T. Chilton, Erik Kemp and Navdeap K. Singh for Defendant and
Respondent.

 

____________________________________________

 

 

 

            Daniel E. Engel appeals from a
judgment entered after the trial court sustained the demurrer of Mortgage
Electronic Registration Systems, Inc. (MERS) to Engel’s second amended
complaint (SAC) for quiet title and declaratory
relief.  Engel obtained a home loan
secured by a deed of trust.  Although the
deed of trust designated a beneficiary and a nominee of the lender (this was
MERS in both cases), it did not designate a trustee.  Engel argues that the omission from the deed
of trust of a designated trustee will prevent anyone ever from foreclosing on
his home loan.  He also claims a security
interest was not created because of the absence of a designated trustee.  By his actions for quiet title and
declaratory relief, he seeks assurances that he may in the future default on
his loan payments with impunity.

            We
decline to provide those assurances because an initial failure to designate a
trustee can be cured by designating a trustee when and if foreclosure becomes
necessary.  Similarly, the absence of a
designated trustee does not preclude a security interest from vesting.  We conclude the court did not err in
sustaining MERS’s demurrer without leave to amend and affirm the judgment.

>BACKGROUND

            Engel
owns a home in Los Angeles County (real property).  He filed a
complaint, seeking to quiet title to the real property.  After an unrelated demurrer was sustained,
Engel filed a first amended complaint (FAC) to quiet title.  MERS demurred.  The court sustained MERS’s demurrer to the
FAC, stating the demurrer “is SUSTAINED with 20 days leave to amend as to the
entire [FAC] because the legal theory that [Engel] claims would justify a
Judgment for quiet title in his favor is defective.”  Engel thereafter filed the SAC in April 2012,
alleging causes of action for declaratory relief and quiet title.

            The
SAC alleged as follows.  In 2004, Engel
obtained a home loan from Amerisave Mortgage Corporation (Amerisave).  Engel signed a promissory note for $150,000
secured by a deed of trust against the real property.  Subsequently, Engel “received a copy of a
document entitled ‘deed of trust.’”  The
deed of trust, which is incorporated into the SAC, identifies Amerisave as
“‘Lender.’”  The deed of trust provides,
“MERS is a separate corporation that is acting solely as a nominee for Lender
and Lender’s successors and assigns. 
MERS is the beneficiary under this Security Instrument.”  It also provides, “Borrower understands and
agrees that MERS holds only legal title to the interests granted by Borrower in
this Security Instrument, but, if necessary to comply with law or custom, MERS
(as nominee for Lender and Lender’s successors and assigns) has the right to
exercise any or all of those interests, including, but not limited to, the
right to foreclose and sell the Property, and to take any action required of
Lender including, but not limited to, releasing and canceling this Security
Instrument.”  The deed of trust did not
designate a trustee, but stated, “Lender, at its option, may from time to time
appoint a successor trustee to any Trustee appointed hereunder by an instrument
executed and acknowledged by Lender and recorded in the office of the Recorder
of the county in which the Property is located.”

            The
SAC alleged that Ohio Savings Bank “[took]
over from Amerisave,” and that Wells Fargo Bank subsequently “‘purchased the
servicing of [the] Loan from OHIO SAVINGS BANK.’”  Engel sent a letter to Wells Fargo stating
that “‘a trustee was never appointed,’” and that the deed of trust “‘did not
convey a valid and enforceable security interest’” in the real property.  Wells Fargo did not respond to Engel’s
letter.

            The
SAC prayed for a judgment “1.  That the >Deed of Trust cannot be used as a basis
for initiating non-judicial foreclosure proceedings against the [real
property].  [¶]  2.  That MERS, who is not the >Lender, cannot lawfully file, ethically
prosecute and ultimately prevail in an action for judicial foreclosure based
upon the Deed of Trust.  [¶] 
3.  That WELLS FARGO, who is not
the Lender, cannot lawfully file,
ethically prosecute and ultimately prevail in an action for judicial
foreclosure based upon the Deed of Trust.”

            MERS
filed a motion to strike and a demurrer to the SAC.  The trial
court sustained MERS’s motion to strike: 
(1) the SAC’s caption with respect to Engel’s href="http://www.fearnotlaw.com/">declaratory relief claim;
(2) paragraphs of the SAC regarding whether MERS, Wells Fargo, or the “>Lender” can prevail in an action for
judicial foreclosure; and (3) the SAC’s prayer for relief for a judgment
that the deed of trust cannot be used to initiate nonjudicial foreclosure
against the real property, MERS cannot prevail in an action for judicial
foreclosure based on the deed of trust, and Wells Fargo cannot prevail in an
action for judicial foreclosure based on the deed of trust.

            Noting
that Engel’s title “is subject to a lien” and Engel “admits that he is still
making the payments,” the court concluded that the SAC did not allege facts
showing that Engel is the “rightful owner of the [real] property” as required
in a claim for quiet title.  The court
also concluded that Engel’s “new allegations” were not relevant to the cause of
action for quiet title and did not respond to the court’s reasons for
sustaining the earlier demurrer.  Having
determined that the deed of trust was not void for lack of a trustee, the court
sustained MERS’s demurrer to the SAC without leave to amend.  Engel appeals from the judgment.

>DISCUSSION

The trial court did not err in sustaining the demurrer
to the SAC without leave to amend

            >A. 
Standard of review

            “In
reviewing the sufficiency of a complaint against a general demurrer, we are
guided by long-settled rules.  â€˜We treat
the demurrer as admitting all material facts properly pleaded, but not
contentions, deductions or conclusions of fact or law.  [Citation.]  We also consider matters which may be
judicially noticed.’  [Citation.]  Further, we give the complaint a reasonable
interpretation, reading it as a whole and its parts in their context.  [Citation.] 
When a demurrer is sustained, we determine whether the complaint states
facts sufficient to constitute a cause of action.  [Citation.]  And when it is sustained without leave to
amend, we decide whether there is a reasonable possibility that the defect can
be cured by amendment:  if it can be, the
trial court has abused its discretion and we reverse; if not, there has been no
abuse of discretion and we affirm.  [Citations.]
 The burden of proving such reasonable
possibility is squarely on the plaintiff. 
[Citation.]”  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

            B. 
The quiet title cause of action

            Arguing
that the trial court erred in sustaining MERS’s demurrer to the SAC without
leave to amend, Engel contends that because the deed of trust did not designate
a trustee, the power of sale was never conveyed; therefore neither MERS nor
anyone else can ever foreclose on Engel’s home if he should stop making
payments on his loan.

            We
disagree because the failure of a deed of trust to designate a trustee can be
cured when and if foreclosure becomes necessary.

            The
deed of trust identifies Amerisave as the “Lender” and MERS as “a nominee for
Lender” and as a beneficiary.  The deed of trust provides that MERS
holds legal title to the interests granted by Engel and that MERS has the right
to foreclose and sell the real property as the nominee of the lender.  It further provides that MERS “has the right
to exercise any or all of” the lender’s interests as nominee of the lender.

            “‘MERS
is a private corporation that administers the MERS System, a national electronic
registry that tracks the transfer of ownership interests and servicing rights
in mortgage loans.  Through the MERS
System, MERS becomes the mortgagee of record for participating members through
assignment of the members’ interests to MERS. 
MERS is listed as the grantee in the official records maintained at
county register of deeds offices.  The
lenders retain the promissory notes, as well as the servicing rights to the
mortgages.  The lenders can then sell
these interests to investors without having to record the transaction in the
public record.  MERS is compensated for
its services through fees charged to participating MERS members.’  [Citation.] 
‘A side effect of the MERS system is that a transfer of an interest in a
mortgage loan between two MERS members is unknown to those outside the MERS
system.’  [Citation.]”  (Gomes
v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1151 (>Gomes).)

            Shuster v. BAC Home Loans Servicing,
LP (2012) 211 Cal.App.4th 505 (Shuster) is directly on point. 
Division Six of this district held in that case that the omission of a
trustee from a deed of trust securing a loan does not preclude nonjudicial
foreclosure of the deed of trust.  (>Id. at p. 507.)  If a trustee is not named initially, it may
be named when and if foreclosure becomes necessary.  (Id.
at p. 511.)

            In
Shuster, the Shusters took out a loan
from a mortgage company to purchase real property.  The mortgage company recorded a deed of trust
against the real property to secure the debt. 
“The deed of trust did not name a trustee, but designated [MERS] as
beneficiary, giving MERS ‘the right to foreclose and sell the Property, and to
take any action required of Lender including, but not limited to, releasing and
canceling [the trust deed].’”  (>Shuster, supra, 211 Cal.App.4th at p. 508.) 
After the Shusters defaulted, MERS substituted ReconTrust Company, N.A.
(ReconTrust) as trustee and assigned
its beneficial interest in the deed of trust to BAC Home Loans Servicing, LP,
which later assigned its interest to respondent Arch Bay Holdings, LLC—Series
2010B (Arch Bay).  ReconTrust recorded a
notice of trustee’s sale.  Arch Bay purchased the real property at the foreclosure sale.

            The Shusters filed a complaint to
quiet title.  ReconTrust and Arch Bay demurred.  The trial court sustained
the demurrers of ReconTrust and Arch Bay to the SAC.  Because the issue of whether the omission of a trustee precludes nonjudicial foreclosure was then
an issue of first impression in California, the >Shuster court conducted an extensive
analysis of out-of-state holdings.  The >Shuster court agreed with an Arizona decision which explained that “a trustee under a deed of trust holds ‘bare legal
title—sufficient only to permit him to convey the property at the out of court
sale.  All other incidents of title
remain in the trustor. . . .  [Citation.]’
 [Citation.]”  (Shuster,
supra, 211 Cal.App.4th at p. 510.)

            Agreeing
with the Arizona court, the Shuster court
noted, “Because the trustor is free to transfer the property and to enjoy all
other incidents of ownership, the [Arizona] court
determined a deed of trust is essentially a mortgage with the power to convey
upon default.  [Citation.]  The [Arizona] court
observed ‘[a] trustee under a deed of trust has neither the legal powers nor
the obligations of a trustee under traditional trust law.  Instead he serves as a type of common agent
for both parties.’  [Citation.]  As a result, ‘the mere failure to designate
trustees does not render the deeds of trust invalid as between the parties to
the trust deed instruments.’  [Citation.]
 In other words, the naming of the
trustee is irrelevant to the creation of the deed of trust, so long as a
trustee is named prior to the foreclosure. 
[Citations.]”  (>Shuster, supra, 211 Cal.App.4th at p. 510.)

            This
reasoning is in accord with longstanding California
authority, which holds that the trustee is merely a common agent, not imbued
with the full array of powers of a “strict trustee.”  (4 Witkin, Summary of Cal. Law (10th ed.
2005) Security Transactions in Real Property, §§ 6–7, pp. 796–799.)

            The
Shuster court affirmed the judgment
of the trial court, noting that California authorities hold that “equity will
not allow a trust to fail for lack of a trustee” and that in contrast to a
grantee, who is conveyed fee simple title for all purposes, “a trustee under a
deed of trust ‘carries none of the incidents of ownership of the property,
other than the right to convey upon default on the part of the debtor in the
payment of his debt.’  [Citation.]”  (Shuster,
supra, 211 Cal.App.4th at p. 511; see
4 Witkin, Summary of Cal. Law, supra,
§ 6, p. 796.)

            Here,
as in Shuster, it has not become
necessary to appoint a trustee yet.  The
SAC does not allege that Engel defaulted on his loan.  Indeed, he is still making the payments.  Thus, the trustee’s duty of reconveying the
real property to Engel or commencing foreclosure has not been triggered.  If Engel later defaults on his loan or
satisfies it in full, a trustee can be appointed at that time to foreclose or
reconvey either under the deed of trust (see Shuster, supra, 211 Cal.App.4th
at p. 510) or by statute (Civ. Code, § 2934a, subd. (a)(1) [“The trustee under
a trust deed upon real property . . . given to secure an obligation
to pay money and conferring no other duties upon the trustee than those which
are incidental to the exercise of the power of sale therein conferred, may be
substituted by the recording in the county in which the property is located of
a substitution executed and acknowledged by: (A) all of the beneficiaries under
the trust deed . . . .”]).

            In
addition, and as stated in Shuster,
we decline to assist those who “seek shelter in
minor ministerial omissions or speculative acts that neither misled nor
prejudiced them.”  (>Shuster, supra, 211 Cal.App.4th at p. 513.)

            Engel
further contends that neither MERS nor Wells Fargo, both of which he claims are
not the holder in due course, will have standing to file an action for judicial
foreclosure in the future because the deed of trust did not name an “‘original trustee.’”  This argument fails for the reasons discussed
above.

            In
accord with Shuster, we conclude that
the deed of trust conveyed a security interest even though it did not designate
a trustee, that a trustee properly may be named when and if foreclosure becomes
necessary, and that the trial court did not err in sustaining MERS’s demurrer
without leave to amend.

            Because
plaintiff’s legal theory is unsound, he cannot prevail in an action to quiet
title.  “‘In a quiet title action the
plaintiff must prove his title in order to recover.’  [Citation.]” 
(Preciado v. Wilde (2006) 139
Cal.App.4th 321, 326.)  “Merely
presenting evidence challenging the defendant’s title is insufficient.  [Citation.]” 
(Ibid.;
Code Civ. Proc., § 761.020.href="#_ftn1" name="_ftnref1" title="">[1])

            Here, Engel cannot prove his title is clear of the
challenged encumbrance.  Engel’s title is subject to a lien.  Engel has not alleged that he tendered the
amount of the encumbrance.  It is well
settled that an action to quiet title will not lie against a mortgagee when the
mortgagor of real property has not paid the amount of the encumbrance to the
mortgagee.  Thus, the SAC does not allege
facts showing that Engel is the “rightful owner of the [real] property.”  (See Shimpones
v. Stickney (1934) 219 Cal. 637, 649 [“a mortgagor cannot quiet his title
against the mortgagee without paying the debt secured”]; Miller v. Provost (1994)
26 Cal.App.4th 1703, 1707 [“a mortgagor of real property cannot, without paying
his debt, quiet his title against the mortgagee”].)

            The
trial court did not abuse its discretion by sustaining the demurrer to the
quiet title cause of action without leave to amend.

            C. 
The declaratory relief cause of action

            Engel
contends that the trial court erred in sustaining MERS’s demurrer to the SAC as
to the cause of action for declaratory relief. 
We disagree for three reasons.

            First,
the trial court did not grant leave for Engel to add a new cause of
action.  “The plaintiff may not amend the
complaint to add a new cause of action without having obtained permission to do
so, unless the new cause of action is within the scope of the order granting
leave to amend.”  (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018,
1023.)  The order sustaining the first
amended complaint granted Engel 20 days’ leave to amend “because the legal
theory that [Engel] claims would justify a Judgment for quiet title in his
favor is defective.”  Engel did not
obtain permission to add a new cause of action and the cause of action for declaratory
relief does not correct the defects in the quiet title cause of action.

            Second,
the SAC failed to state a claim for declaratory relief.  In order to state a claim for declaratory
relief, a complaint must allege:  “‘an
actual controversy involving justiciable questions relating to [the plaintiff’s]
rights or obligations . . . .  [Citation.]’  [Citation.]  A declaration of rights or duties with respect
to property may be a proper subject of declaratory
relief.  (Code Civ. Proc., § 1060;
[citation].)  But even assuming that [the plaintiff’s]
action satisfies the first requirement, it must still present an ‘actual
controversy.’  (Code Civ. Proc., § 1060.)
 â€˜The “actual controversy” language in Code
of Civil Procedure section 1060 encompasses a probable future
controversy relating to the legal rights and duties of the parties.  [Citation.]’ 
[Citation.]  It does not embrace
controversies that are ‘conjectural, anticipated to occur in the future, or an
attempt to obtain an advisory opinion from the court.’  [Citation.]  Thus, while a party may seek declaratory
judgment before an actual invasion of rights has occurred, it must still
demonstrate that the controversy is justiciable.  [Citation.]” 
(Wilson & Wilson v. City
Council of Redwood City (2011) 191 Cal.App.4th 1559, 1582.)

            Here,
Engel’s request for a declaration is conjectural.  Although Engel would like to know what might
happen if he chooses to stop making payments, he does not allege he is in
default or will probably stop making payments. 
A “probable future controversy” is not alleged.

            Third,
Engel cannot succeed in obtaining a declaration in his favor because failure to
designate a trustee at the outset does not make the instrument
unenforceable.  “‘A general demurrer may
be sustained without leave to amend where it is probable from the nature of the
defects and previous unsuccessful attempts to plead that the plaintiff cannot
state a cause of action.’  (5 Witkin,
Cal. Procedure (5th ed. 2008) Pleading, § 992, p. 403.)”  (Oddone v. Superior Court (2009) 179
Cal.App.4th 813, 823.)

DISPOSITION

            The judgment is affirmed.

            NOT
TO BE PUBLISHED.

 

                                                                                    MILLER,
J.href="#_ftn2" name="_ftnref2" title="">*

We concur:

 

            CHANEY,
Acting P. J.

 

            JOHNSON,
J.