Civil Code section 2932.5, which mandates that an assignee of a mortgagee must record the assignment before exercising a power to sell the real property, only applies to mortgages and does not apply to deeds of trust. (Haynes v. EMC Mortgage Corporation (--- Cal.Rptr.3d ----, Cal.App. 1 Dist., April 9, 2012).
Nathaniel Haynes (“Haynes”) purchased a home in Oakland on May 4, 2006. He executed a deed of trust that named EquiFirst Corporation as the lender, Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary under the security instrument, and Placer Title Company as trustee. The deed of trust secured a promissory note for $437,750. After Haynes defaulted on the promissory note, Quality Loan Service Corp. (“QLSC”) started nonjudicial foreclosure proceedings on April 10, 2008, by recording a “Notice of Default” and “Election to Sell under Deed of Trust.” QLSC was substituted as trustee for Placer Title Company on May 22, 2008. QLSC recorded a “Notice of Trustee’s Sale” for the property on August 2, 2008, and the property was sold at public auction on November 24, 2008. A “Trustee’s Deed Upon Sale” was recorded on December 4, 2008, in favor of EMC Mortgage (“EMC”). The deed provided that QLSC was the trustee and that EMC was the purchaser and foreclosing beneficiary.
Haynes filed a lawsuit against EMC alleging the foreclosure was unlawful because there had been no assignment of the promissory note to EMC recorded before the property was sold. The trial court granted judgment in favor of EMC on the ground that Civil Code section 2932.5 did not require that the assignment of the loan to EMC must be recorded.
The sole issue before the court of appeal was whether the provisions of Civil Code section 2932.5 apply to deeds of trust as well as mortgages. Section 2932.5 provides, “Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.” The court of appeal agreed with the trial court’s holding that section 2932.5 does not apply to deeds of trust.
The purpose of section 2932.5 is not to ensure that a borrower can identify who is holding his or her loan. Instead, section 2932.5 requires that the assignment of a mortgage be recorded “so that a prospective purchaser knows that the mortgagee has the authority to exercise the power of sale.” Such notice is not necessary when a deed of trust is involved because it is the trustee that conducts the sale and transfers the title. A “literal application of section 2932.5 to deeds of trust would effectively require the power of sale to be transferred to the lender, contrary to the terms of the trust deed and of section 2934a which provides detailed requirements for the transfer of the power of sale to another trustee.”
The court held that where a deed of trust is involved, a trustee may begin foreclosure proceedings regardless of whether an assignment of its beneficial interest has been recorded. Where a mortgage is involved, if there is no proper record that indicates who is the current holder of the note that gives the power to sell the property, a purchaser is at risk of purchasing an encumbered title. However, with a deed of trust, the legal title passes to the trustee, who can execute the trust to transfer marketable title to the purchaser.
Because a trustee has the power to sell property whether or not an assignment of beneficial interest in a deed of trust has been recorded, there was no requirement that the assignment from MERS to QLSC be recorded before nonjudicial foreclosure proceedings were instituted against Haynes. Accordingly, the court of appeal affirmed the judgment of the trial court.
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