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posting for
Wednesday, March 19, 2003
by: Keith
Pearson
LIMITATIONS PERIODS/DEEDS OF TRUST/MORTGAGES/POWER
OF SALE
The California Court of Appeal has held that a deed
of trust could be foreclosed even though the note secured by the deed of trust
matured 10 years earlier, and there had been no payments on the note for at
least 7 years in the case of Nicolopulos v. Superior Court (Bourgeois, Real
Party in Interest), 2003 Cal. App. LEXIS 226.
Stephen Nicolopulos and Tom Phillips jointly
purchased real property in Lawndale in May 1988. Nicolopulos and Phillips
entered into a first mortgage with Citibank, and also signed a promissory note
to Allan Creighton for $ 15,000. The promissory note called for monthly
payments of interest and a final payment of principal and accrued interest on
May 28, 1991. The note was secured by a deed of trust executed by Nicolopulos
and Phillips. The deed of trust, which was notarized and recorded, did not state
the maturity date of the promissory note. No evidence indicated the note was
ever recorded.
In April 1989, Phillips quitclaimed his interest in
the property to Nicolopulos. In July 1990, Allan Creighton sold the promissory
note to real party in interest Louis W. Bourgeois, III (the opinion is not
clear how Creighton received ownership of the note). Nicolopulos asserts that
in June 1995, he informed Bourgeois that he believed the note had been
satisfied, and he made no further payments on the note.
In June 2002, more than ten years after the maturity
date of the note, and almost seven years after Nicolopulos stopped making
payments, Bourgeois recorded a "Notice of Default and Election To Sell
Under Deed of Trust" on the property, thus commencing nonjudicial
foreclosure proceedings. A foreclosure sale was scheduled for October 17, 2002.
On October 11, 2002, Nicolopulos filed suit for declaratory and injunctive
relief to prevent foreclosure of the deed of trust claiming that the lien was
extinguished by Cal. Civ. Sec. 2911 and also expired by Sec. 882.020.
Section 2911 provides that a lien is extinguished by
the lapse of time within which an action can be brought upon the obligation.
The court however said this does not apply to a power of sale in a deed of trust.
Thus, prior to 1982 a power of sale in a deed of trust never extinguished. In
1982, California enacted the Marketable Title Act which included Sec. 882.020.
Sec. 882.020 provides that the lien of a deed of trust expires ten years after
final maturity date of the obligation if that date is ascertainable from the
record, or if not 60 years after recordation of the deed. Because the maturity
date was not ascertainable from the deed of trust the power of sale was held to
still be valid.
Author's Note--A correct decision under California
law. California follows the title theory of deeds of trust (for the most part)
which says that a deed of trust actually transfers title in a quasi-trust
status with power of sale held by the trustee of the deed of trust for
foreclosure purposes only. Because of this theory, this decision is correct.
There are other states that follow the lien theory of deeds of trust (Texas for
one). I believe this decision would come out differently in those states.
**********
Following Wednesday's posting, Alan Rubin
(Manhattan) writes:
New York is one of the states that follows the lien
theory of mortgages. The statute of limitations (six years for foreclosure
actions) bars recovery for installments due under a mortgage more than six years
before the commencement of the foreclosure action. It does not, however, bar
recovery for the principal amount due on a mortgage which matured within those
six years.
However, once a lender has opted to accelerate the
loan, each subsequent payment which would otherwise have been due does not
start a new period of limitations. Upon acceleration, the entire amount becomes
due and the statute of limitations begins at that moment to run on the entire
debt.
