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MTC Financial Inc. v. California Department of Tax and Fee Administration

Facts: A property owner takes out a personal loan secured by a trust deed on their residential property. The trust deed’s legal description of the property contains multiple errors, citing an incorrect lot number as well as failing to name the city where the property is located. Later, the owner defaults on their mortgage and the property is nonjudicially foreclosed. After paying the mortgage holder, the trustee distributes excess proceeds from the trustee’s sale to the junior lienholders who hold an interest in the property, including the California Tax Department, which holds an outstanding tax lien against the property recorded after the trust deed securing the personal loan.

Claim: The holder of the trust deed securing the personal loan seeks the excess funds, claiming their trust deed is senior to the tax department’s lien since it was created before the tax lien against the property owner.

Counterclaim: The California Tax Department claims the trust deed securing the personal loan is void since its legal description of the property is insufficient.

Holding: A California appeals court holds the Tax Department is entitled to the excess proceeds from the trustee’s sale since the trust deed securing the personal loan is void as the legal description of the property is insufficient. [MTC Financial Inc. v. California Department of Tax and Fee Administration (October 31, 2019)­_CA6th_]

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Editor’s note — Void and voidable are similar concepts. However, they are distinguishable by the date they affect the validity of a deed, and thus, the rights of those who rely on the deed. Void deeds are unenforceable at all times and never convey an interest in real estate. A voidable deed, on the other hand, is a deed which is valid and enforceable after delivery, until it is challenged due to a defect and declared invalid by court order.

Here, the court determined the insufficiencies in the trust deed’s legal description of the property rendered the deed void, and thus unenforceable, meaning the lender is unable to collect on their lien.