
As an American, I have a genetic predisposition to cheering for the underdog. So when an elderly woman hustles Wells Fargo out of nearly half a million dollars, I think “Awesome.” And that’s pretty much what happened in this case. A fun opinion, with some novel arguments by counsel for Wells Fargo, this case also represents the intersection of archaic property holding schemes and sloppy loan processing. To cap it off, Justice Mosk’s closing paragraph is essentially a mic-drop citation to the California Maxims of Jurisprudence (Civil Code §§ 3509-3548) where he tells Wells Fargo that because you suck at your job, the heirs in question should not suffer.
The cast of characters are as follows.
· Lawrence Peterson, the original owner of the property in question.
· Jacqueline Peterson, Lawrence’s second wife and beneficiary of a life estate.
· Mark & Paul Peterson, Lawrence’s sons and the plaintiffs in this matter.
· Wells Fargo, the lender and defendant.
Lawrence bequeathed a life estate to Jacqueline in his will which allowed her to live in the property for the rest of her life. Lawrence died in 1986. The will contained additional provisions regarding Jacqueline’s power over the property. Jacqueline had the power to sell the property but the proceeds would be split three ways between her, Mark, and Paul. If she died before selling the house, the house would pass to Mark and Paul, in equal shares.
In 2008, Jacqueline obtained a loan from Wells Fargo for $410,000. Wells Fargo secured the loan with a deed of trust. In 2010, Jacqueline dies. When she dies, the mortgage payments to Wells Fargo stop. Wells Fargo then records a notice of default and election to sell, putting Mark and Paul on notice of their claim. Mark and Paul then bring an action against Wells Fargo for quiet title and cancellation of the instrument as to the deed of trust. On summary judgment, the trial court cancelled the deed of trust and notice of default and ordered the house to pass to Mark and Paul in fee simple, free of encumbrances.
The basic problem here is that Wells Fargo did not conduct a thorough title search prior to issuing the loan. If they had, they would have presumably seen an executor’s deed from the estate to Jacqueline imposing the life estate. In fact, any time property is transferred through probate great care should be taken to review the will and the order to ensure that there is no confusion as to what type of interest was transferred. The problem presented by the life estate is that Jacqueline did not have the power to encumber it with a deed of trust because that would "...create an estate that will extend beyond the duration of the life estate..." Slip Opinion, Pages 6-7. Essentially, the property was not hers to encumber, rendering the deed of trust void. Hence, this appeal.
It appears that they only relied on the last transaction in the title search, which occurred in 2003. What happened there was that Jacqueline illegally conveyed to herself a fee simple interest in the property in conjunction with a loan from a different lender. The timing of the filings is odd. Jacqueline’s grant deed to herself was recorded on the same day as the deed of trust benefitting the lender, California National Bank i.e. January 8, 2003. One take on this is that Jacqueline fooled California National Bank by recording an illegal grant deed. However, California National Bank would have conducted a title search and seen the executor’s deed prior to issuing the loan. Thus, they would have known the nature of the interest held by Jacqueline. Also, she executed the grant deed on the same day that she borrowed the funds and signed the grant deed i.e. January 2, 2003. This suggests that California National Bank put all these documents in front of her and then recorded them all simultaneously a few days later. Probably, they looked at the executor’s deed, didn’t understand it, and had Jacqueline sign a grant deed to herself in order to firm up title for the underwriter to approve the loan.
Wells Fargo first argues that Jacqueline received a fee estate subject to a condition subsequent with the subsequent conditions being the sale of the property, her remarriage, or her death before remarriage or sale. The court quickly disregards this sophistry and takes them back to law school by explaining the nature of a life estate, noting that: “Giving Jacqueline a rent-free residence during her lifetime established a life estate because that is a limitation on the duration of her estate, not a condition on the use of the property.” Slip Opinion, Page 10.
Wells Fargo next argues that the deed of trust executed in their favor was actually a sale of the property. This is another whopper. Basically, they argue that the deed of trust conveys the property to Wells Fargo because it transfers title to the trustee under the deed of trust. Taking them back to law school, Justice Mosk places a page long citation to a 1922 California Supreme Court case (Bank of Italy etc. Assn. v. Bentley 12 (1933) 217 Cal. 644, 656-657 in case you were wondering) explaining the effect and nature of deed of trust and concluding that “although Wells Fargo acquired technical legal title to the Property through its trust deed, such acquisition did not constitute a permissible sale of the Property under the Probate Order.” Slip Opinion, Page 11-12.
Wells Fargo then goes for the Hail Mary. They argue that the probate order granting the property to Jacqueline actually gave her a hybrid 1/3 fee interest, 2/3 life estate because she could have sold the property during her lifetime and received 1/3 of the sale proceeds. Justice Mosk’s response is, essentially, “Do you even lawyer, bro?” The court notes that nothing in the probate order supports this contention. Next subject.
Wells Fargo’s final argument is one in equity, in that their loan should be construed as an advance against the 1/3 sale proceeds. Here is the mic-drop:
“Wells Fargo or its agent failed properly to determine that Jacqueline had a life estate and not fee interest in the Property prior to loaning her money. Plaintiffs were not involved in the loan. Wells Fargo or its agent, and not innocent third parties, should bear any loss resulting from Wells Fargo’s loan to Jacqueline. (Civ. Code, § 3543 [“Where one of two innocent persons must suffer by the act of a third, he, by whose negligence it happened, must be the sufferer”].)”
Boom shakalaka
The cast of characters are as follows.
· Lawrence Peterson, the original owner of the property in question.
· Jacqueline Peterson, Lawrence’s second wife and beneficiary of a life estate.
· Mark & Paul Peterson, Lawrence’s sons and the plaintiffs in this matter.
· Wells Fargo, the lender and defendant.
Lawrence bequeathed a life estate to Jacqueline in his will which allowed her to live in the property for the rest of her life. Lawrence died in 1986. The will contained additional provisions regarding Jacqueline’s power over the property. Jacqueline had the power to sell the property but the proceeds would be split three ways between her, Mark, and Paul. If she died before selling the house, the house would pass to Mark and Paul, in equal shares.
In 2008, Jacqueline obtained a loan from Wells Fargo for $410,000. Wells Fargo secured the loan with a deed of trust. In 2010, Jacqueline dies. When she dies, the mortgage payments to Wells Fargo stop. Wells Fargo then records a notice of default and election to sell, putting Mark and Paul on notice of their claim. Mark and Paul then bring an action against Wells Fargo for quiet title and cancellation of the instrument as to the deed of trust. On summary judgment, the trial court cancelled the deed of trust and notice of default and ordered the house to pass to Mark and Paul in fee simple, free of encumbrances.
The basic problem here is that Wells Fargo did not conduct a thorough title search prior to issuing the loan. If they had, they would have presumably seen an executor’s deed from the estate to Jacqueline imposing the life estate. In fact, any time property is transferred through probate great care should be taken to review the will and the order to ensure that there is no confusion as to what type of interest was transferred. The problem presented by the life estate is that Jacqueline did not have the power to encumber it with a deed of trust because that would "...create an estate that will extend beyond the duration of the life estate..." Slip Opinion, Pages 6-7. Essentially, the property was not hers to encumber, rendering the deed of trust void. Hence, this appeal.
It appears that they only relied on the last transaction in the title search, which occurred in 2003. What happened there was that Jacqueline illegally conveyed to herself a fee simple interest in the property in conjunction with a loan from a different lender. The timing of the filings is odd. Jacqueline’s grant deed to herself was recorded on the same day as the deed of trust benefitting the lender, California National Bank i.e. January 8, 2003. One take on this is that Jacqueline fooled California National Bank by recording an illegal grant deed. However, California National Bank would have conducted a title search and seen the executor’s deed prior to issuing the loan. Thus, they would have known the nature of the interest held by Jacqueline. Also, she executed the grant deed on the same day that she borrowed the funds and signed the grant deed i.e. January 2, 2003. This suggests that California National Bank put all these documents in front of her and then recorded them all simultaneously a few days later. Probably, they looked at the executor’s deed, didn’t understand it, and had Jacqueline sign a grant deed to herself in order to firm up title for the underwriter to approve the loan.
Wells Fargo first argues that Jacqueline received a fee estate subject to a condition subsequent with the subsequent conditions being the sale of the property, her remarriage, or her death before remarriage or sale. The court quickly disregards this sophistry and takes them back to law school by explaining the nature of a life estate, noting that: “Giving Jacqueline a rent-free residence during her lifetime established a life estate because that is a limitation on the duration of her estate, not a condition on the use of the property.” Slip Opinion, Page 10.
Wells Fargo next argues that the deed of trust executed in their favor was actually a sale of the property. This is another whopper. Basically, they argue that the deed of trust conveys the property to Wells Fargo because it transfers title to the trustee under the deed of trust. Taking them back to law school, Justice Mosk places a page long citation to a 1922 California Supreme Court case (Bank of Italy etc. Assn. v. Bentley 12 (1933) 217 Cal. 644, 656-657 in case you were wondering) explaining the effect and nature of deed of trust and concluding that “although Wells Fargo acquired technical legal title to the Property through its trust deed, such acquisition did not constitute a permissible sale of the Property under the Probate Order.” Slip Opinion, Page 11-12.
Wells Fargo then goes for the Hail Mary. They argue that the probate order granting the property to Jacqueline actually gave her a hybrid 1/3 fee interest, 2/3 life estate because she could have sold the property during her lifetime and received 1/3 of the sale proceeds. Justice Mosk’s response is, essentially, “Do you even lawyer, bro?” The court notes that nothing in the probate order supports this contention. Next subject.
Wells Fargo’s final argument is one in equity, in that their loan should be construed as an advance against the 1/3 sale proceeds. Here is the mic-drop:
“Wells Fargo or its agent failed properly to determine that Jacqueline had a life estate and not fee interest in the Property prior to loaning her money. Plaintiffs were not involved in the loan. Wells Fargo or its agent, and not innocent third parties, should bear any loss resulting from Wells Fargo’s loan to Jacqueline. (Civ. Code, § 3543 [“Where one of two innocent persons must suffer by the act of a third, he, by whose negligence it happened, must be the sufferer”].)”
Boom shakalaka