OC Interior Services, LLC v. Nationstar Mortgage, LLC

Facts: A property owner defaults on a mortgage secured by a trust deed on their commercial property. In an attempt to cancel the mortgage, the owner files a complaint against the lender, falsely claiming to have paid the mortgage in full and to have given notice to the lender. The lender fails to respond, so the owner obtains a default judgment cancelling the trust deed and the lender’s interest in the property. The owner sells the property to a buyer who is aware of the default judgment. The lender then learns of the default judgment, has it voided and attempts to foreclose on its interest in the property.

Claim: The buyer seeks to retain possession of the property, claiming they qualify as a bona fide purchaser (BFP) since the default judgment was not apparently void at the time they purchased the property.

Counter claim: The lender claims the buyer’s title is invalid since a BFP cannot claim title based on a void judgment, even when the judgment is voided after the buyer purchases the property.

Holding: A California court of appeals holds the lender may foreclose on the property since the protections for a BFP only extend to those who have obtained good legal title, and the buyer’s title rests on a void judgment. [OC Interior Services, LLC v. Nationstar Mortgage, LLC (January 31, 2017) _CA4th_]

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