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Recording a Trustee’s Deed is Privileged Under CA Civil Code Section 47

California law is pretty clear that the recordation of a notice of default and notice of sale — two key documents that are a prerequisite to a nonjudicial foreclosure sale (aka trustee’s sale) — are privileged and cannot form the basis of liability in court.

Civil Code section 2924(d)(1) says so.

Section 2924(d)(1) states that the “mailing, publication, and delivery of notices as required” by section 2924 “constitute privileged communications pursuant to Section 47.”  Section 2924(a)(1) and (a)(3) require the recordation of both a notice of default and a notice of sale.

But what about the recordation of a trustee’s deed — the aftermath of a nonjudicial foreclosure sale that officially vests title in the winning bidder?  Is that privileged too?  Section 2924 does not “require” the recordation of a trustee’s deeds.

A recent decision from California’s Second Appellate District — Schep v. Capital One, N.A. (with modifications here) — recently weighed in on the question….

Facts and Trial Court’s Judgment

In 2007, Raymond Schep borrowed $910,000 from a mortgage company.  The loan was secured by a deed of trust on a home in Beverly Hills, with Mortgage Electronic Registration Systems, Inc. (MERS) listed as beneficiary, and a predecessor of Capital One, N.A. was the trustee.

By late 2009, the loan was in default.  MERS substituted a new trustee to handle the foreclosure (T.D. Service Company). T.D. recorded a notice of default, and later, a notice of trustee’s sale.

In between the recordation of those two documents, an outsider with no legitimate connection to the loan (one Mr. Timothy Fitzgerald of US Banc Trustee TTE) recorded a “wild deed” claiming to be the beneficiary, and purporting to substitute himself as trustee and to reconvey the deed of trust to Schep without further payment.  The “unbroken chain of title” (which the trial court later took judicial notice of) showed that Fitzgerald’s “wild deed” was false.

In 2011, Capital One bought the property at a trustee’s sale.  The trustee recorded a trustee’s deed upon sale.

Schep sued T.D. and Capital One for slander of title, based on the trustee’s recording of the notice of default, notice of sale, and trustee’s deed.  Capital One filed a demurrer arguing that the recording of those documents was privileged.  The trial court agreed, and dismissed the case.

Schep appealed.

Court of Appeal’s Opinion

The court of appeal affirmed the trial court’s judgment.

The opinion started with the easy issue, noting that the recordation of the notice of default and notice of sale were expressly privileged under Civil Code sections 2924 and 47.

As to the notice of sale, the court held the privilege likewise applied.  The court pointed to a different subdivision of the statute, section 2924(d)(2), stating that the privilege broadly applies to the “performance of the procedures set forth in this article[.]”  That article (titled “Mortgages in General”) includes other sections (2924.12 and 2924.19) that “specifically contemplate that a trustee’s deed upon sale will be recorded as the capstone of the process of nonjudicial foreclosure.”

The court stated the policy considerations behind its conclusion:

Our Legislature’s purpose in declaring these procedures privileged was to give trustees some measure of protection from tort liability arising out of the performance of their statutory duties. … That purpose is fulfilled only if all of the procedural steps attendant to a nonjudicial foreclosure are privileged, from the recording of the notice of default and notice of sale through the recording of the trustee’s deed upon sale following the foreclosure sale.

The court also held that the privilege applied not just to the trustee who records a trustee’s deed upon sale, but also to “the principal who directs that recording.”  Section 2924 contemplates that recording of documents can be accomplished by a “trustee, mortgagee, or beneficiary, or any of their authorized agents.”

Lesson

Just like recording a notice of default or a notice of sale, recording a trustee’s deed after a completed nonjudicial foreclosure sale is privileged, and cannot form the basis of liability in court.

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