Real Property Law

Case Law Update: Bailey v. Citibank, N.A.

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Daniel Miller

By Daniel Miller

The California Court of Appeals for the Fifth Appellate District recently reversed a trial courtā€™s decision under the California Code of Civil Procedure section 473 to set aside a default and a judgment quieting title. However, the Court also held that the judgment quieting title was erroneous as a matter of law.

A copy of the opinion is available at: Link to Opinion.

Two occupants of a piece of property petitioned to quiet title based on their alleged adverse possession of the property for a five-year period. Before that period was completed, a bank, as successor in interest of a deed of trust recorded against the property long before the petitionersā€™ adverse possession began, foreclosed and acquired title to the property under the trusteeā€™s deed.

The bank, however, failed to answer or otherwise respond to the petitionersā€™ complaint, and default was entered and the trial court ultimately entered a judgment quieting title in the petitionersā€™ favor. The bank moved to set aside both the default and the judgment under the mandatory provisions of the California Code of Civil Procedure section 473, based on the bankā€™s attorneyā€™s affidavit of fault.

The trial court granted the bankā€™s motion, and the default and judgment quieting title were set aside. The petitioners appealed that order on the ground that no basis existed for potential relief under section 473 since the bankā€™s attorney was not retained to handle the case until after the default was entered. In response to the petitionersā€™ appeal, the bank filed a protective cross-appeal, arguing that even if relief under section 473 was unavailable, the judgment quieting title in the petitionersā€™ favor was erroneous as a matter of law and should have been reversed.

Section 473, subdivision (b), contains two distinct provisions for relief: one is discretionary and is reserved for situations of excusable neglect, while the other is mandatory and applies even to inexcusable neglect of an attorney resulting in his or her clientā€™s default provided that the attorney submits an adequate affidavit of fault. See Martin Potts & Associates, Inc. v. Corsair, LLC (2016) 244 Cal.App.4th 432, 438.

Here, the trial court rejected discretionary relief from the default and default judgment but found that mandatory relief was available based on the bankā€™s attorneyā€™s declaration of fault. The Fifth District thus determined that the issue on appeal was whether grounds for mandatory relief were presentedā€”i.e., whether the requirements for such relief under the statute were met.

The mandatory relief provision of section 473, subdivision (b), states as follows: ā€œNotwithstanding any other requirements of this section, the court shall, whenever an application for relief is made no more than six months after entry of judgment, is in proper form, and is accompanied by an attorneyā€™s sworn affidavit attesting to his or her mistake, inadvertence, surprise, or neglect, vacate any (1) resulting default entered by the clerk against his or her client, and which will result in entry of a default judgment, or (2) resulting default judgment or dismissal entered against his or her client, unless the court finds that the default or dismissal was not in fact caused by the attorneyā€™s mistake, inadvertence, surprise, or neglect.ā€ Ā§ 473, subd. (b).

The Fifth District noted that, when a complying affidavit is filed, relief is mandatory, even if the attorneyā€™s neglect was inexcusable. Rodrigues v. Superior Court (2005) 127 Cal.App.4th 1027, 1033. However, relief may be denied if the court finds the default was not in fact the attorneyā€™s fault, for example when the attorney is simply covering up for the clientā€™s neglect. Rogalski v. Nabers Cadillac (1992) 11 Cal.App.4th 816, 821. Similarly, where a party inexcusably allows default to be entered and then afterwards hires an attorney, the provision does not apply because the default must in fact be caused by the attorneyā€™s mistake. Cisneros v. Vueve (1995) 37 Cal.App.4th 906, 908, 910ā€“912.

Here, the Fifth District observed that it was undisputed that the bankā€™s default was entered on November 14, 2018, but the bankā€™s attorney was not referred or assigned to act as attorney on the case until January 10, 2019. Because attorney error could not possibly have caused the default in this case, the Court held that mandatory relief was unavailable and that the trial court erred as a matter of law in granting mandatory relief under section 473, subdivision (b).

The Fifth District then moved on to address the bankā€™s cross-appeal challenging the judgment quieting title. According to the bank, the judgment must be reversed because the petitionersā€™ possession of the property was not hostile and adverse to the bankā€™s title for a full five years.

The elements of an adverse possession claim consist of the following: (1) actual possession by the plaintiff of the property under claim of right or color of title; (2) the possession consists of open and notorious occupation of the property in such a manner as to constitute reasonable notice to the true owner; (3) the possession is adverse and hostile to the true owner; (4) the possession is uninterrupted and continuous for at least five years; and (5) the plaintiff has paid all taxes assessed against the property during the five-year period. Hansen v. Sandridge Partners, L.P. (2018) 22 Cal.App.5th 1020, 1032ā€“1033.

Based on its review of the undisputed facts and applicable law, the Fifth District concluded that the petitioners had not established that their possession of the property was adverse or hostile to the bank for the required five-year period. Rather, the petitionersā€™ possession of the property did not become adverse or hostile to the bankā€™s rights until the bank actually took title under the trusteeā€™s deed in April of 2018, only a few months before the petitionersā€™ complaint was filed.

The Fifth District noted that the trusteeā€™s deed was based upon the foreclosure of the 2005 deed of trust, a deed of trust that was executed and recorded as a lien or encumbrance on the property long before the petitionersā€™ adverse possession began. Under such facts, the Court held that, during the time period when the bankā€™s interest was merely that of beneficiary of the 2005 deed of trust (i.e., a lienholder), the petitionersā€™ possession of the property would not be considered hostile to the bankā€™s rights. See Comstock v. Finn (1936) 13 Cal.App.2d 151, 155ā€“158. ā€œA mortgagor or his grantee in possession of mortgaged property may not set up the [adverse possession] statute of limitations against the mortgageeā€ since such possession is ā€œpresumed to be amicable and in subordination to the mortgage.ā€ Laubisch v. Roberdo (1954) 43 Cal.2d 702, 706.

Additionally, the Fifth District determined that the petitioners could gain no greater title than that of the original owners they had dispossessed; namely, title subject to the 2005 deed of trust. See Williams v. Sutton (1872) 43 Cal. 65, 73. Consequently, the Court held that the petitionersā€™ adverse possession claim was subject to and eliminated by the bankā€™s foreclosure of the 2005 deed of trust. Based on the record and title documents before it, the Court concluded that the bank, and not the petitioners, held the rightful title and ownership of the property under the 2018 trusteeā€™s deed.

Accordingly, on the petitionersā€™ appeal, the Fifth District reversed the trial courtā€™s order under section 473 to set aside the default and judgment. On the bankā€™s cross-appeal, the Court reversed the judgment quieting title, and the matter was remanded to the trial court to enter a new judgment in favor of the bank.

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