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Court of Appeal:
Judgment in UD Case Following Trustee Sale Did Not Bar Action for Wrongful Foreclosure
By a MetNews Staff Writer
Div. Three of the Fourth District Court of Appeal has held that where a purchaser of a home at a foreclosure sale proceeds to have the former owners evicted pursuant to a judgment in an unlawful detainer action, that judgment does not preclude the ejected parties from suing the lender and the loan servicer on the ground that the property was wrongfully put in foreclosure.
Justice Eileen C. Moore authored the opinion, which was filed Wednesday.
Orange Superior Court Judge Melissa R. McCormick sustained demurrers to all 10 causes of action set forth in a complaint filed by former homeowners Linda and Dwayne Struiksma against HSBC Bank USA, N.A. and Ocwen Loan Servicing, LLC. They contended that those defendants negligently failed to credit payments they had made, triggering a wrongful institution of a foreclosure.
Moore said the trial judge erred in sustaining demurrers to nine of those causes of action, each of which stemmed from the purchaser of the home, DNE Associates, utilizing a summary proceeding, as authorized by Code of Civil Procedure §1161a(b)(3), for gaining possession of a home sold at a trustee sale.
McCormick reasoned:
“[T]he validity of the foreclosure, the foreclosure process, and the trustee’s sale were encompassed by the unlawful detainer action. Plaintiffs’ claims that the foreclosure and the trustee’s sale were wrongful could have been litigated in the unlawful detainer case. The default judgment entered on the unlawful detainer complaint therefore necessarily adjudicated issues relating to the propriety of the foreclosure and the trustee’s sale.”
The lender and the loan servicer were not parties to the unlawful detainer action
Moore’s Opinion.
Explaining the partial reversal of the judgment of dismissal, Moore said:
“We find the court erred in ruling plaintiffs’ claims were precluded, and we publish this case to clarify the preclusive effect of an unlawful detainer action under section 1161a. In such a proceeding, the court must determine whether the purchaser duly perfected title. But this is a limited inquiry focusing on how the trustee’s sale is conducted. Issues of title outside this narrow scope need not be raised and are not precluded in subsequent lawsuits. Here, plaintiffs’ claims were not directly related to the conduct of the sale and were not at issue in the unlawful detainer action. Nor were plaintiffs required to bring their claims against defendants in that proceeding.”
She added:
“Defendants also argue that certain claims the trial court found precluded fail for reasons other than preclusion. Given its ruling, the court had no opportunity to consider these arguments. So, we remand this case for the court to consider them in the first instance.”
The jurist went on to spell out:
“The non-TILA claims arise from defendants’ failure to credit plaintiffs’ payments to their account, not any irregularity in the trustee’s sale. As such, they are not precluded by the unlawful detainer action.”
Not Appropriate Vehicle
Moore commented that it would be unfair to require the Struiksmas to litigate complex issues, which would require use of discovery, in the context of an unlawful detainer proceeding. Limiting discovery would prejudice them, and permitting it would “destroy the summary nature of the proceeding,” she said.
The tenth cause of action was for an alleged violation of the the Truth in Lending Act (“TILA”). A demurrer was properly sustained as to that cause of action, Moore wrote, because it only applies to the original mortgagee, which was not a defendant in the Struiksmas’s action, or if a violation is readily discernible from the face of the loan documents which, she said, does not apply.
The case is Struiksma v. Ocwen Loan Servicing, LLC, 2021 S.O.S. 3085.
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