On September 13, 2011, California’s 2nd District Court of Appeal issued an important ruling in Calvo v. HSBC Bank USA, N.A.  The case focused on California Civil Code section 2932.5, which requires the assignee of a mortgagee to record an assignment before exercising a power to sell real property.

The borrower argued that the non-judicial foreclosure of her residence was void under section 2932.5 because assignment of the beneficial interest under a deed of trust had not been recorded before foreclosure proceedings started.  The Court disagreed and affirmed the trial court’s dismissal of the borrower’s lawsuit on the rationale that the statute applies to mortgages but “does not apply when the power of sale is conferred in a deed of trust.”

In reaching its decision in Calvo, the Court followed a 1908 California Court of Appeal decision (Stockwell v. Barnum) that involved a precursor to section 2932.5.  In that case, the Court had distinguished a deed of trust from a mortgage and concluded that the statute did not apply to a trustee’s sale under a deed of trust.  Noting that Stockwell had not been reversed or modified for more than 100 years and that federal district courts had recently followed it, the Court rejected the borrower’s contention that Stockwell was outmoded.  The Court said that instead section 2932.5 itself became practically obsolete over the past 100 years as deeds of trust largely replaced mortgages as the predominant real estate security instrument in California.

Keesal, Young & Logan Mortgage Banking Group

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