In its recent opinion issued in Ha v. Bank of N.Y. Mellon, No. H050054, 2023 Cal. App. Unpub. LEXIS 3145 (May 31, 2023), the California Court of Appeal, Sixth Appellate District (“the Court”) held that in a quiet title action brought against a secured lender, it was necessary for the plaintiff to allege tender of any outstanding debt on the loan, regardless of whether they were a party to that loan, and also reaffirmed that non-parties to a loan have no standing to attack its validity absent a demonstration of assignment or assumption.

Background

On January 3, 2006, Plaintiff Minhtam Ha (“Plaintiff”) and her husband sold their San Jose residence (“the Property”) to Dzung Pham (“Pham”), who obtained an $840,000 mortgage loan from Mylor Financial Group, Inc. (“Mylor”) to fund the purchase.  Pham’s loan was secured by a deed of trust on the Property which contained a power of sale if Pham were to default.  Unbeknownst to Pham at the time, Pham’s mortgage broker had made misrepresentations about the loan documents, which contained material changes to the terms and conditions of Pham’s financing.

In October 2009, Pham sold the Property back to Plaintiff for $505,000, with their purchase agreement requiring that Pham clear the Property of all liens.  After Pham’s execution of a grant deed transferring the Property, Plaintiff discovered that the Mylor lien still existed.  Pham stated that he had no knowledge of this lien and that he would immediately resolve it, but was unable to do so and subsequently defaulted on the Mylor loan.  On March 17, 2010, a substitution of trustee and assignment of the deed of trust to Defendant Bank of New York Mellon (“Defendant”) was recorded, followed by a December 22, 2015 notice of default, a property sale, and Defendant’s eventual March 2, 2018 purchase of the property at the trustee’s sale for $949,450.  Post-purchase, Defendant moved to evict Plaintiff from the property.

While these events were ongoing, Plaintiff brought a quiet title action seeking to establish her ownership and possession of the Property, contending that the original Mylor loan had improperly involved fraud committed by both the lender and its broker.  However, the trial court dismissed Plaintiff’s action – even after multiple amendment attempts – holding that Plaintiff was unable to satisfy the requirement of demonstrating tender.  Specifically, the trial court found that if the underlying Mylor loan was void for fraud, then Pham could have no interest in the subject property, as his interest was only created via Mylor’s loan tender.

Appeal

Plaintiff appealed before the Court, arguing that the tender rule was inapplicable.  The Court ultimately affirmed the dismissal, first explaining that the tender rule requires a borrower to allege tender of the outstanding debt on a mortgage or deed of trust before seeking to quiet title against a secured lender.

Plaintiff argued that this rule was inapplicable because Plaintiff and her husband did not have a loan with Defendant and were thus not borrowers.  However, the Court rejected this contention, citing Burns v. Hiatt, 87 P. 196, 197 (Cal. 1906) and holding that the tender requirement applies even if the party bringing suit was not a party to the original loan.  In Plaintiff’s case, the Court observed that Pham had failed to clear the lien on the property when Plaintiff and her husband had purchased it back from him.  Defendant’s subsequent proceeding to enforce the lien, regardless of whether Plaintiff was a party to it, did not extinguish the lien, as Defendant – as assignee of the loan – was entitled to enforce the debt owed on the title after acquiring it at the trustee’s sale. Thus, the only way for Plaintiff to quiet the title was to tender the loan.

Plaintiff also argued that she was not required to allege tender because her action attacked the validity of the underlying debt. However, this claim was dismissed for a lack of standing to assert fraud or attack the validity of the loan, as she was not a party to it, and had failed to allege any facts showing an assignment or assumption of the loan to her.

Finally, the Court also determined that Plaintiff was unable to establish that it would be inequitable to require tender in this case. The Court reasoned that if Pham’s loan from Mylor was void due to fraud, “then either Pham did not have an interest in the subject property, or Pham would only have an interest through the tender of the amount received” by Mylor. “As Plaintiff’s interest is dependent on Pham’s interest, it is not inequitable to require tender” when Plaintiff acknowledged the possibility of liens and required Pham to remove those liens in the purchase agreement.

Takeaways

This decision underscores the significance of the requirement to allege tender of debt in an action to quiet title. In addition, it highlights the importance of understanding one’s responsibility regarding the tender of debt prior to purchasing property. By failing to do so, Plaintiff and her husband were unsuccessful in establishing that they were the rightful owners of the property and should remain in possession of their residence.

This article was prepared by Riker Danzig summer associate Samantha Fitzgerald, a 2024 J.D. Candidate at the University of Maryland Francis King Carey School of Land and Staff Editor of the Maryland Law Review.  For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, James Mazewski at jmazewski@riker.com, Kevin Hakansson at khakansson@riker.com, or Kori Pruett at kpruett@riker.com.