Immunity for Deed of Trust Foreclosure Trustees — Absolute or Qualified?
Under California Civil Code section 2924(d), a trustee’s communications and actions that are necessary to conduct a nonjudicial foreclosure sale pursuant to a deed of trust are privileged under Civil Code section 47. The purpose of extending this privilege is to provide trustees with a certain degree of immunity or protection from tort liability that might otherwise arise from the performance of their statutory duties.
Section 47 contains two different types of privilege: absolute privilege (also known as the litigation privilege) under subdivision (b) (which provides broad immunity regardless of the defendant’s motives), and a qualified privilege under subdivision (c) (which provides narrower immunity for conduct without “malice”). Section 2924(d) does not specify which type of privilege applies to a trustee’s actions during a nonjudicial foreclosure, and case law is split on the issue.
In an opinion recently published by California’s Fifth Appellate District — Kaur v. Dual Arch International, Inc. — the court came down on the side of qualified immunity.
Facts: Trustee conducts foreclosure sale, gets sued
Dalip and Parkash Pabla owned property in Livingston, California. Four years after the property’s purchase, a promissory note for $60,000 was created with Dalip and Parkash identified as the borrowers, and Parkash’s stepchildren identified as the lenders. The note reflected what appeared to be signatures by Dalip and Parkash. The note was accompanied by a deed of trust on the property, also apparently signed by Dalip and Parkash. Dalip later deeded the property to Parkash as her separate property. Dalip later died.
Dual Arch International was substituted in as the trustee under the deed of trust, and then sent a Notice of Default alleging a default under the note. Counsel for Parkash sent a letter to Dual Arch denying that Parkash had any knowledge of a debt owed or a deed of trust. Dual Arch recorded a Notice of Sale.
Parkash filed a complaint against the stepchildren and Dual Arch, alleging the note and deed of trust were forgeries and thus void. Nonetheless, Dual Arch conducted the nonjudicial foreclosure sale, sold the property, and recorded a trustee’s deed.
Trial court: sale set aside, but tort claims against trustee fail due to privilege
The stepchildren failed to appear in the lawsuit and were held in default. The court granted Parkash’s motion for nonsuit against the stepchildren and Dual Arch on her claim for quiet title and entered an order setting aside the foreclosure sale. Parkash’s tort claims against Dual Arch remained for trial.
During trial, Dual Arch moved for nonsuit based on privilege, and the trial court granted the motion.
Parkash appealed.
Court of Appeal: qualified, not absolute, privilege applies
The Court of Appeal reversed the trial court’s grant of nonsuit for procedural reasons, but in doing so addressed the fundamental question of what type of privilege applies to the conduct of a trustee conducting a nonjudicial foreclosure sale.
The court first noted the split of authority on the issue: one court has ruled that the absolute immunity applies (Garretson v. Post (2007) 156 Cal.App.4th 1508, 1517-1518), while another case concluded that qualified immunity applies (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 340).
The court sided with the reasoning in Kachlon, stating:
We also agree with Kachlon’s reasoning that section 47, subdivision (c)’s qualified common interest privilege is the natural and appropriate fit for the nonjudicial foreclosure scheme. We find particularly compelling Kachlon’s observation that a ‘nonjudicial foreclosure sale’ involves a series of communications between interested parties, and by definition does not involve any judicial proceeding or other ‘official proceeding authorized by law.’ Moreover, as observed by Kachlon, granting trustees absolute immunity would mean that a trustor has no recourse against an unscrupulous trustee who acts with malice to deprive or attempt to deprive the trustor of his property. Malicious conduct by its very nature is atypical, goes beyond mere negligence, and is anathema to the notion of a trustee acting as a common agent (albeit with limited duties) to both the beneficiary/creditor and the trustor/debtor; it has no place within the nonjudicial foreclosure scheme. To grant a trustee absolute immunity for even acts performed with actual malice could well undermine public confidence in the nonjudicial foreclosure process. On the other hand, granting a trustee the qualified immunity of section 47, subdivision (c) strikes the appropriate balance between providing protections for trustees who engage in conduct akin to negligence (thus providing a measure of protection) and ensuring that a trustee whose conduct rises to the level of actual malice will be subject to liability.
As such, the court concluded that the immunity provided by section 2924(d) is the qualified variety of immunity set forth in section 47(c), not the absolute variety of immunity in section 47(b).
Lesson
Under the Kaur opinion, trustees conducting a nonjudicial foreclosure sale under a deed of trust enjoy a qualified, not absolute, privilege for their conduct. Under that standard, malicious misconduct by the trustee can result in liability.