Wells Fargo Bank N.A. v. Danielo, 2012 WL 472739 (Cal.App. 5 Dist., Unpublished, Feb. 14, 2012).
Not Officially Published - (Cal. Rules of Court, Rules 8.1105 and 8.1110, 8.1115)
WELLS FARGO BANK, N.A., Plaintiff and Respondent,
Rona Daneilo, Defendant and Appellant.
Court of Appeal,
Fifth District, California.
Filed February 14, 2012
(Super.Ct. No. 637304)
APPEAL from a judgment of the Superior Court of Stanislaus County. Hurl W. Johnson III, Judge.
Law Offices of Michael L. Abbott, Michael L. Abbott, for Defendant and Appellant.
Suppa, Trucchi & Henein, Samy S. Henein, James J. Blackburn for Plaintiff and Respondent.
Wiseman, Acting P.J.
Respondent Wells Fargo Bank, N.A. ("Wells Fargo"), sued appellant Rona Daneilo for breach of contract and obtained a judgment against Daneilo for $251,481.03. Daneilo appeals and contends that Wells Fargo could not lawfully sue her for breach of contract because the debt was secured by a deed of trust on real property owned by Daneilo, and Wells Fargo's only remedy for any breach was to foreclose on the real property. Wells Fargo counters that ordinarily that would be so, but because Wells Fargo's deed of trust was junior to a deed of trust held by Countrywide Bank, and because the senior lien holder foreclosed on the property, rendering the security valueless to Wells Fargo, Wells Fargo may seek the monetary judgment it obtained. We agree with Wells Fargo and affirm the judgment.
PROCEDURAL AND FACTUAL HISTORIES
The facts in this case are undisputed and the case was heard by the court without a jury. In May of 2005, Daneilo executed a deed of trust on real property she owned, located at 36 South Daubenberger Road in Turlock, to secure a $402,000 debt she owed to Countrywide Bank. On August 29, 2005, Daneilo executed an agreement with Wells Fargo entitled "EquityLine with FlexAbility (SM) Agreement and Disclosure Statement" (the Agreement). Under this Agreement, Daneilo borrowed $225,000 from Wells Fargo, with the debt secured by a second deed of trust Daneilo executed on the Daubenberger Road property.
On August 26, 2008, Countrywide Bank filed a notice of default. On July 24, 2009, Countrywide Bank filed a notice of sale of the Daubenberger Road property, and on August 20, 2009, Countrywide's successor, Bank of America, acquired title to the property at a foreclosure sale.
This action was filed on February 5, 2009. The parties submitted trial briefs in November 2009. The court issued its decision on May 4, 2010, and judgment was entered on June 11, 2010.
Code of Civil Procedure section 726, subdivision (a), states:
"There can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property or an estate for years therein, which action shall be in accordance with the provisions of this chapter. In the action the court may, by its judgment, direct the sale of the encumbered real property or estate for years therein (or so much of the real property or estate for years as may be necessary), and the application of the proceeds of the sale to the payment of the costs of court, the expenses of levy and sale, and the amount due plaintiff, including, where the mortgage provides for the payment of attorney's fees, the sum for attorney's fees as the court shall find reasonable, not exceeding the amount named in the mortgage."
"Although section 726(a) refers only to a 'mortgage,' the statute applies equally to a deed of trust. [Citations.]" ( Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991, 997, fn. 4.) "Under section 726 of the Code of Civil Procedure, there may be only one action for the recovery of a debt secured by a trust deed, which action is one of foreclosure." ( Brown v. Jensen (1953) 41 Cal.2d 193, 195.) "(S)ection 726 and the statutory scheme of which it is a part require a secured creditor to proceed against the security before enforcing the underlying debt. [Citation.] This rule is hornbook law in California and warrants no extended discussion." ( Security Pacific National Bank v. Wozab, supra, at p. 999.)
There is an exception, however, when the security is lost through no fault of the creditor. "It is the settled law, however, that in case of a failure or destruction of the security, without the fault of the mortgagee, the mortgagee will not be restricted to a procedure which manifestly must prove to be vain and idle." ( Cohen v. Marshall (1925) 197 Cal. 117, 123.) In such a situation, the mortgagee may sue the debtor on the debt itself. ( Ibid.; Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d 134, 140.) "(T)he exception does not apply if the beneficiary himself is responsible for the loss of security. Thus a creditor is not allowed to circumvent the statute by divesting himself of his security without the consent of the debtor. [Citation.] If he does so he has waived his right to proceed on the note. '[W]hen the mortgagee, by his own act or neglect, deprives himself of the right to foreclose the mortgage, he at the same time deprives himself of the right to an action upon the note.' [Citation.]" ( Pacific Valley Bank v. Schwenke, supra, at pp. 140–141.) Here, the security was lost, but the loss was through no fault of the creditor, Wells Fargo. The debtor, appellant Daneilo, caused the loss of the security by not paying her debt to Countrywide Bank. Having caused the loss of the security, Daneilo nevertheless essentially contends that she is entitled to a gift of more than $200,000 from Wells Fargo. The law, as described above, does not agree.
Daneilo argues that Wells Fargo may not sue her on the debt because the Agreement does not expressly say that if she should cause the loss of the security, Wells Fargo may sue her for the debt and "will not be restricted to a procedure which manifestly must prove to be vain and idle." ( Cohen v. Marshall, supra, 197 Cal. at p. 123.) Although this type of provision could have been placed in the Agreement, it was not required. The Agreement Daneilo signed stated under the section 13 heading "MY PROMISE TO PAY": "I promise to pay to the Bank the total of all advances which I make or which I authorize to be made from my Account. I promise to pay the total of any FINANCE CHARGE, plus all amounts past due, overlimit amounts, and any Late Charges, fees, other charges and other obligations charged to my Account under this Agreement or the Security Instrument."
It is not disputed that Daneilo breached her obligation to pay. Nothing in the Agreement states or implies that if Daneilo should cause the loss of the security, her promise to pay would disappear and the money loaned to her by Wells Fargo would become a gift. To the contrary, the Agreement contemplated that the debt would be secured. The Agreement stated: "I am giving the Bank a Deed of Trust, Mortgage or other Security Instrument...." Wells Fargo would not have and could not have taken a deed of trust on the property if Daneilo had not owned the property when her Agreement with Wells Fargo was made on August 29, 2005. When Daneilo caused the loss of the security, Wells Fargo was entitled by law to sue her for her breach of her promise to pay.
For the first time on appeal, Daneilo also argues that section 28 of the Agreement bars Wells Fargo from suing her on the debt. We reject this contention for two reasons. First, because Daneilo did not raise it in the trial court, she may not now raise it on appeal. ( Menefee v. County of Fresno (1985) 163 Cal.App.3d 1175, 1182.) Second, section 28 of the Agreement is entitled "PERSONAL LIABILITY (TEXAS HOMESTEAD PROPERTY ONLY)" and cannot reasonably be read to apply to situations in which the debt was secured by property not located in Texas. The debt in this case was secured by property located in California.
The judgment is affirmed. Costs are awarded to Wells Fargo.
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