Facts: A property owner dies. The property owner’s will grants their spouse a life estate with a power of sale in their separate property, providing the spouse the right to occupy the property for the duration of the spouse’s lifetime. Under the terms of the will, the spouse may sell the property and divide the sale proceeds between the spouse and their two children. Further, if the spouse dies and has not sold the property, it passes to the children. The spouse obtains a mortgage secured by a trust deed on the property. The spouse later dies and the mortgage goes into default. The lender files a Notice of Default (NOD) and attempts to foreclose on the property.
Claim: The property owner’s children seek to cancel the trust deed and quiet title to the property, claiming the lender has no claim to the property after the spouse’s death since the spouse only had a life estate which does not confer ownership of the property.
Counterclaim: The lender seeks to foreclose on the property, claiming the spouse was given fee ownership of the property since they had the ability to sell it.
Holding: A California court of appeals holds the lender may not foreclose on the property and the property owner’s children hold fee ownership of the property free from the lender’s lien since the spouse’s power of sale did not translate into fee ownership of the property and thus upon the spouse’s death the lender is unable to enforce the trust deed. [Peterson v. Wells Fargo Bank, N.A. (May 8, 2015) ___ CA4th ___]