Can Reliance on a Quiet Title Judgment Preserve Title Rights in California?

In the recent case of Ridec, LLC v. Hinkle, the California appellate court considered its prior decision in Tsasu LLC v. U.S. Bank Trust, N.A., where the court construed one section of California’s Quiet Title Act (the Act) (Code Civ. Proc., § 760.010 et seq.).

Specifically, Tsasu confirmed that section 764.060 provides that a party acquiring title to property “in reliance” on a quiet title judgment retains its rights in that property—even if that judgment is subsequently invalidated as void—as long as the party is a “purchaser or encumbrancer for value” who lacked knowledge of any defects or irregularities in the earlier quiet title judgment or the proceedings.

In the Ridec case, the trial court declined to follow the plain text of section 764.060 and Tsasu, and instead followed the pre-Act, common law rule that deems invalid any and all rights deriving from a judgment later invalidated as void.

The appeal presented three questions: Was the trial court’s refusal to apply binding statutory and decisional law warranted by the court’s views that (1) the common law rule better accorded with the trial court’s public policy preferences, (2) the common law rule applicable to non-quiet title actions cannot coexist with the Act’s rule for quiet title judgments, or (3) section 764.060 is unconstitutional?

The answer to all questions was “no.”

A trial court may not disregard the plain text of a statute or binding precedent in favor of its own view of what the law should be.

Section 764.060 does not violate due process or deny equal protection of the law.

The trial court erred when, in the alternative, it applied section 764.060 to deprive a lender of its rights to property based on a later-invalidated quiet title judgment.

The appellate court reversed the trial court’s judgment and ordered that judgment be entered for the lender.

In 2010, Ocie Payne Hinkle (Ocie) was an 89-year-old woman who owned several parcels of property in Los Angeles, California. Ocie has an adult son, Ocy.

A few years earlier, Ocie had started a relationship with Roi Wilson (Wilson). In the fall of 2010, Ocie was hospitalized and medicated; while in that state, Wilson prevailed upon Ocie to grant him power of attorney over her affairs.

Wilson then used that power of attorney to deed away much of Ocie’s real property.

As pertinent to this case, while acting as Ocie’s “attorney-in-fact,” Wilson in 2010 signed a grant deed giving Ocie’s property at 1723 Buckingham Road to Edmound Daire. Integral to his frauds, Daire is a professional “document preparer.”

In 2011, after Ocy learned of Wilson’s conduct against his mother, Ocie was placed in a conservatorship.

In 2010, Daire had signed a grant deed giving the property back to Ocie. After Ocie passed away in 2014, Ocy became the administrator of her estate, and, as her sole heir, entitled to title to the Buckingham property.

In 2014, Daire filed a verified complaint to quiet title to the Buckingham property in his name.

As defendants he named (1) Ocie, (2) Wilson, and (3) “All Persons Unknown Claiming Any Legal or Equitable Right, Title, Estate, Lien, or Interest in the Property Described in the Complaint Adverse to Plaintiff’s Title or Any Cloud on Plaintiff’s Title Thereto.”

In his complaint, Daire alleged that he had title pursuant to the October 2010 grant deed and that the subsequent November 2010 grant deed purporting to reverse the transfer was a forgery; thus, he sought to cancel the November 2010 grant deed and quiet title to the Buckingham property in himself.

Daire recorded a lis pendens regarding his pending quiet title lawsuit. Daire’s process server purportedly personally served Ocie with the complaint.

Daire requested—and the court clerk entered—a default against Ocie.

The trial court held a hearing on whether to enter judgment against Ocie in Daire’s quiet title action.

At that hearing, the court heard evidence (chiefly, Daire’s testimony) and took judicial notice of the record chain of title. At the conclusion of the hearing, the court entered judgment quieting title to the Buckingham property in Daire, and expunging the November 2010 grant deed.

In its judgment, the court also found that Ocie had been “regularly served with lawful process, via personal service.”

Daire recorded the quiet title judgment in the County Recorder’s Office a week later.

Within a few months of recording the quiet title judgment in his favor, Daire applied for two loans.

Daire applied to Ridec LLC for a $650,000 loan and offered up the Buckingham property as collateral. Ridec retained a title insurer that ran a title report on the Buckingham property and that report reflected the two deeds, the conservatorship action over Ocie, and the quiet title judgment in favor of Daire.

Because the time to appeal the quiet title judgment did not expire for 180 days, Ridec’s title insurer insisted that Ridec wait for the end of that appeal period to ensure that there were no appellate challenges to that judgment.

In 2016, the title insurer ran a second title report on the Buckingham property, which reflected the notice of lis pendens reflecting the commencement of the probate of Ocie’s estate; and a notice of withdrawal of the lis pendens.

In light of the expiration of the time to appeal the quiet title judgment, the withdrawal of the lis pendens filed during that appeal period, and the absence of any other reason to question the validity of Daire’s title, the title insurer informed Ridec that title to the Buckingham property was vested in Daire.

Thus, escrow on the loan closed, Ridec recorded a deed of trust on the Buckingham property for $650,000, and Ridec wired $568,711.35 to Daire’s account at Citibank, N.A.

Daire also borrowed $400,000 from lender PSG, which was also secured by a deed of trust on the Buckingham property.

Daire falsely told PSG that PSG had the “first” deed of trust on the property, as Ridec had recorded its deed of trust against the Buckingham property one day earlier.

After recording its deed of trust, PSG subsequently transferred it and its owner became Title Resources Guaranty Company.

Ocy learned that (1) Daire had filed a fraudulent proof of service in conjunction with his quiet title action, which reported that Ocie had been personally served with Daire’s complaint, although she had died nearly a year before; and (2) Daire had filed a fraudulent notice of withdrawal of the lis pendens on which he had forged the signature of Ocy’s lawyer.

Once Daire’s deceptions came to light, the litigation frenzy began.

Ridec’s title insurer sued Daire and Citibank, seeking—and obtaining—court orders freezing the disbursed loan funds still in Daire’s Citibank account.

The first phase of the litigation was meant to answer the question: As between Daire and Ocy (in his capacity as administrator of Ocie’s estate), who had title to the Buckingham property?

After a one- day bench trial, the trial court issued an order quieting title to the Buckingham property in Ocy and declaring that Daire had no valid interest in the property.

The second phase was meant to answer the question: As between the lenders Ridec and PSG and Ocy (again, in his capacity as administrator of Ocie’s estate), were the lenders’ deeds of trust valid encumbrances on the Buckingham property?

The trial court concluded that the lenders’ deeds of trust were invalid and did not encumber Ocy’s title to the Buckingham property.

However, the trial court concluded that the lenders were entitled to recover the amounts of their loans, plus interest.

Ridec timely appealed the judgment and the denial of its posttrial motion to set aside that judgment.

Enacted in 1980, the Act creates a special mechanism for obtaining quiet title judgments that operate in rem—and hence are binding not only against the parties to the quiet title proceeding, but also against all the world.

Mindful of the need to provide due process protections for those persons who would be bound by the in rem quiet title judgment even though they did not participate in the litigation producing it, the Act’s requirements for obtaining an in rem (i.e., real property) quiet title judgment are more stringent than the requirements for obtaining judgments resolving adverse claims to property under other in personam causes of action.

To obtain a quiet title judgment under the Act, the plaintiff must (1) file a verified complaint that names, as defendants, (a) “[all] persons having adverse claims” to the plaintiff’s title, and that includes persons whose claims are “of record,” whose claims are “known to the plaintiff,” or whose claims are “reasonably apparent from an inspection of the property,” and (b) “‘all persons unknown, claiming any legal or equitable right, title, estate, lien, or interest in the property described in the complaint adverse to plaintiff’s title, or any cloud upon plaintiff’s title thereto’”; (2) record a lis pendens regarding the pendency of the quiet title action in the county recorder’s office where the property is located; and (3) establish entitlement to a quiet title judgment with “evidence of [the] plaintiff’s title” rather than “by default”.

The courts are split as to whether this requires an evidentiary hearing at which a defaulted defendant may participate or merely a prove-up hearing at which a higher quantum of evidence must be produced.

Once the Act’s more stringent requirements are met, the resulting quiet title judgment is more resilient to subsequent challenges.

The appellate court concluded that the trial court erred when it invalidated Ridec’s deed of trust in the Buckingham property and thereby impaired Ridec’s rights in that property.

Because Ridec acquired its rights in that property after the quiet title judgment, and did so in reliance on that judgment, section 764.060 supplies the pertinent rule, and Ridec’s rights in the property may not be impaired as long as Ridec (1) was a purchaser or encumbrancer for value, and (2) acted without knowledge of any defects or irregularities in the judgment or the proceedings.

It is undisputed that Ridec was an encumbrancer for value because its deed of trust was in exchange for loaning Daire $650,000.

The record also compelled a finding, as a matter of law, that Ridec acted without knowledge of any defects or irregularities in the quiet title judgment or the proceedings that produced it.

There is no evidence that Ridec (and, necessarily, its officers or employees) had any actual, subjective knowledge regarding the two chief defects with the quiet title judgment or the validity of Daire’s title at the time of its loan.

Thus, under section 764.060, as construed in Tsasu, Ridec was an encumbrancer for value who acted without knowledge of any defects or irregularities with the quiet title judgment; as a result, its “rights” could not be impaired and its deed of trust remained valid.

Because none of the trial court’s reasons for disregarding section 764.060 and Tsasu were valid, the court erred in refusing to apply the governing statute and binding precedent interpreting that statute.

The judgment was reversed and remanded with directions to enter a judgment finding that Ridec’s deed of trust was valid.

LESSONS:

1.         A party acquiring title to property “in reliance” on a quiet title judgment retains its rights in that property—even if that judgment is subsequently invalidated as void—as long as the party is a “purchaser or encumbrancer for value” who lacked knowledge of any defects or irregularities in the earlier quiet title judgment or the proceedings.

2.         A trial court may not disregard the plain text of a statute or binding precedent in favor of its own view of what the law should be.

3.         The Act’s requirements for obtaining an in rem (i.e., real property) quiet title judgment are more stringent than the requirements for obtaining judgments resolving adverse claims to property under other in personam causes of action.

4.         Because Ridec acquired its rights in that property after the quiet title judgment, and did so in reliance on that judgment, section 764.060 supplies the pertinent rule, and Ridec’s rights in the property may not be impaired as long as Ridec (1) was a purchaser or encumbrancer for value, and (2) acted without knowledge of any defects or irregularities in the judgment or the proceedings.ry of the title defect.