Facts: A property owner defaulted on a loan secured by a trust deed. MERS, as beneficiary, instructed the trustee to foreclose. The trustee’s deed upon sale was recorded in favor of the successful bidder, revealing to the property owner that an assignment of beneficial interest to the successful bidder occurred prior to the sale, as the successful bidder was both the purchaser of the property and the foreclosing beneficiary.
Claim: The property owner sought to void the foreclosure sale, claiming the foreclosure was unlawful since the assignment of beneficial interest to the successful bidder was not recorded prior to the sale.
Counterclaim: The successful bidder sought to maintain the foreclosure sale, claiming it was not necessary to record the assignment of beneficial interest to the successful bidder prior to the sale since the requirement to record a transfer of beneficial interest only applies to mortgages, not trust deeds.
Holding: A California court of appeals held the trustee’s sale was valid since it was not necessary to record the assignment of the beneficial interest to the successful bidder prior to the sale as the requirement to record a transfer of beneficial interest only applies to mortgages, not trust deeds. [Haynes v. EMC Mortgage Corporation (2012) __ CA4th__]
Editor’s note —Trust deeds and mortgages are different in the fine print, as evidenced by this case. In California, a loan secured by real estate is a trust deed loan but also takes on the qualities of a mortgage. A trust deed is either foreclosed as a mortgage judicially or as a trust deed via a trustee’s sale, also known as a nonjudicial foreclosure. However, if a mortgage is the document used to evidence the security for a loan and create the lien on real estate, it is solely a mortgage which must be judicially foreclosed as it contains no agreement for a trustee’s sale foreclosure.
“Mortgage” has taken on a double meaning in California, meaning both:
- a land sales contract inclusive of trust deeds and mortgages, though most commonly referring to trust deeds; and
- a mortgage document.
In this case, the property owner attempts to assert the rules governing the latter meaning onto the former meaning. Mortgages and trust deeds have frequently been treated interchangeably in California. This case serves as a reminder that a difference does exist.