Flashback: Five years ago, Money and Dirt covered the Salazar v. Thomas opinion from California’s Fifth District Court of Appeal holding that a Notice of Default does not “disturb possession” sufficiently to start the statute of limitations running on a claim for quiet title based on an allegedly void deed of trust. See the post here: A Notice of Default Does Not “Disturb Possession”
A recent opinion from California’s First District Court of Appeal — Huang v. Wells Fargo Bank, N.A. — takes a similar approach, holding that a lender’s Notice of Trustee’s Sale (the step in a nonjudicial foreclosure after a Notice of Default and before the sale) likewise did not “disturb possession” enough to start the clock ticking on a quiet title claim.
Facts: notice of trustee’s sale posted, but possession undisturbed for years
The Huangs filed an action in September 2014 against Wells Fargo Bank to quiet title to their property in Lafayette, contending Wells Fargo’s deeds of trust on the property were invalid.
The prior owners of the property, the Fasslers, obtained a first home equity line of credit in the amount of $100,000 from Wells Fargo, secured by a deed of trust against the property in first position. A few years later, the Fasslers obtained a new home loan from World Savings Bank in the amount of $530,00, which was also secured by a deed of trust on the property. Wells Fargo agreed to subordinate its deed of trust to second position behind the World Savings deed of trust.
Another home equity line of credit from Wells Fargo followed, and in 2004 the Fasslers refinanced all three loans into a single new loan of $682,500 secured by a deed of trust in favor of Countrywide. The Countrywide loan paid off all three prior loans, but Wells Fargo never recorded any reconveyances of its equity lines.
The Fasslers then reopened the Wells Fargo equity lines and drew over $220,000 on them between 2005 and 2008.
The Fasslers refinanced the Countrywide loan with a $1 million secured loan from Washington Mutual Bank. They defaulted on that loan, and Washington Mutual foreclosed. LaSalle Bank bought the property at Washington Mutual’s nonjudicial foreclosure sale.
The next month, Wells Fargo recorded a notice of default and election to sell the property under the power of sale provisions in its home equity line deed of trust.
The Huangs purchased the property from LaSalle Bank’s successor in February 2009. They were issued a policy of title insurance from Fidelity National Title Company.
On August 24, 2009, Wells Fargo recorded its notice of trustee’s sale, with a sale set for September 14, 2009. The Huangs received the notice when it was posted on the door of the property. The Huangs immediately forwarded the notice of sale to Fidelity. Fidelity informed the Huangs that it would investigate the matter.
The trustee’s sale did not proceed as scheduled. The Huangs received periodic updates from Fidelity regarding the status of discussions with Wells Fargo, but never received any confirmation from Fidelity that the matter was resolved. Between July 2010 and May 2014, the Huangs heard nothing further and assumed the matter had been resolved. But in May 2014, the Huangs learned that Wells Fargo was again threatening to foreclose.
The Huangs sued Wells Fargo in September 2014 to quiet title to the property.
Trial court: quiet title claim barred by statute of limitations
After nearly three years of litigation, the trial court granted Wells Fargo’s motion for summary judgment, concluding that the Huangs’ claims were time-barred.
The Huangs appealed.
Court of Appeal: reversed; quiet title claim was timely
Applying the reasoning of the Salazar opinion, the Court of Appeal held that that as a general rule the statute of limitations in a quiet title action “does not run against one in possession of land.” Possession, the court held, is “the most obvious and important property right,” and one in possession should not be subjected to forfeiture of the property by waiting to sue. As long as the possession is “undisturbed,” the statute of limitations will not run.
In determining whether possession is “undisturbed,” courts look at three factors:
- when were plaintiffs no longer owners in exclusive and undisputed possession of the property
- when was defendants’ adverse claim pressed against plaintiffs
- when was defendants’ hostile claim asserted in some manner to jeopardize the superior title held by plaintiffs
Just as the plaintiffs in the Salazar opinion, the Huangs had been at all times in exclusive possession of the property. The notice of trustee’s sale did not disturb their possession. The notice of sale was no more a “threat to title” than the notice of default in Salazar — it “did not call into question the validity of the Huangs’ control or possession of the property, only that their ownership would require them to pay the amount in default.”
The Huangs took appropriate action by tendering to Fidelity and reasonably relied on Fidelity to address the matter. The trustee’s sale did not proceed, the matter appeared to go dormant, and the Huangs continued living at the property and their possession was undisturbed. No claims were being “pressed against” them.
The court acknowledged that in some circumstances a notice of sale could reasonably challenge a property owner’s “occupancy, dominion, or control” over property. But here, any threat was eliminated when the Huangs took action through their title insurer and the sale was indefinitely postponed. The court also noted that by September 2010, Wells Fargo’s notice of sale was stale and could no longer legitimately threaten the Huangs’ possession — Wells Fargo was required under Civil Code section 2924g(c) to issue a new notice if it wished to proceed with a sale.
A notice of trustee’s sale does not necessarily “disturb possession” sufficiently to start the statute of limitations running on a property owner’s claim for quiet title.
Ignoring a notice of sale, of course, is never a good idea. But when the notice of sale is addressed and the sale has apparently been halted, possession is not disturbed and the limitations period will not run.