A California Trust Deed, a Power Of Sale, and Community Property

The Second Appellate District of California, in Trenk v. Soheili, affirmed the judgment of the trial court quieting title in property that was the subject of a trust deed, finding that even though the statute of limitations had not run, the community property presumption was not rebutted, and the failure of the spouse to sign the trust deed rendered it voidable.

The Facts of Trenk v. Soheili

Joseph Trenk is a lawyer who previously represented Morteza Sohyly. Sohyly sued him for malpractice, and the parties settled in 2003. Joseph agreed to pay $100,000 and executed a promissory note and a trust deed on Trenk’s home in Granada Hills (the “Residence”) to secure the obligation. Sohyly’s sister, Maryam Soheili, was designated as the beneficiary of the trust deed.

Dinah, Joseph’s wife, did not sign the deed or the note. Joseph stopped regular payments on the note after 2003, and paid nothing more until October 2017, when he made a $2,500 payment.   Sohyly (through Maryam Soheili, his sister) began nonjudicial foreclosure proceedings in January 2018.

The Trenks filed this lawsuit to clear title to their house, alleging that the trust deed was no longer enforceable. After a short trial, the trial court quieted title in the Residence in favor of the Trenks, ruling that both the statute of limitations and the Marketable Record Title Act (Civ. Code, § 880.020 et seq.) barred enforcement of the trust deed.

On appeal, Soheili and Sohyly (“Appellants”) argued that the 60 year time period for enforcement of a trust deed applied under section 880.020, subdivision (a)(2). The Trenks dispute that claim, and also argued that the trust deed was unenforceable because Dinah did not sign it.

What Is a Deed Of Trust?

A trust deed or deed of trust is an agreement between a lender and a borrower to transfer an interest in the borrower’s real property to a neutral third party in order to secure the payment of the debt by the borrower. A trust deed can be used as a tool to sell the property if the borrow defaults.

What Is the Statute Of Limitations To Enforce a Deed Of Trust?

Under California Civil Code section 882.020, a trustee deed has a statute of limitations of either 60 years or 10 years.

10 years

If the final maturity date or the last date fixed for payment of the debt or performance of the obligation is ascertainable from the recorded evidence of indebtedness, 10 years after that date.

60 years

If the final maturity date or the last date fixed for payment of the debt or performance of the obligation is not ascertainable from the recorded evidence of indebtedness, or if there is no final maturity date or last date fixed for payment of the debt or performance of the obligation, 60 years after the date the instrument that created the security interest was recorded.

Recording Required For 10 Year Statute Of Limitations To Apply To California Trust Deed

Actual notice of the date when an underlying obligation is due is not sufficient to trigger the 10-year period under California Civil Code section 882.020, subdivision (a). A recorded document must reveal that date.

Here, the Note was not recorded. The Trust Deed was recorded, but it did not state the date when the final payment under the Note was due. The 60-year period to exercise a power of sale under section 882.020(a)(2) therefore applied.

The Trenks argued that the 10-year limit on enforceability under section 882.020, subdivision (a)(1) should apply because there is “direct privity and a familial relationship between the original party to the note . . . , settlement agreement . . . and the deed of trust.” The appellate court made quick work of this argument, stating:

This argument fails to acknowledge the clear language of section 882.020. Section 882.020 expressly states that the 10- year time period applies only if “the final maturity date or the last date fixed for payment of the debt or performance of the obligation is ascertainable from the recorded evidence of indebtedness.” Alternatively, “[i]f the final maturity date or the last date fixed for payment of the debt or performance of the obligation is not ascertainable from the recorded evidence of indebtedness,” the 60-year period applies. There is no ambiguity in this statutory requirement that a document stating the last date for payment of the underlying obligation must be recorded for the 10-year period to apply. The requirement does not make any exception when there is actual knowledge of that date by the party that is exercising a power of sale. We must give effect to this requirement. (citations omitted)

Trust Deeds and Community Property

Even though the statute of limitations under California law had not yet run on the deed of trust, the power of sale in the trust deed was not enforceable for another reason —community property.

Family Code section 760 provides that, “[e]xcept as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.” This provision establishes a presumption affecting the burden of proof, which may be rebutted by a preponderance of the evidence.

The Trenks acquired the Residence as joint tenants in 1988 while they were married. The fact that the Trenks took title to the Residence as joint tenants is not sufficient in itself to show that Joseph had a separate interest in the Residence that he could lawfully encumber with the Trust Deed.

The California Supreme Court, in In re Brace, made clear that the community property presumption in Family Code section 760 cannot be rebutted simply by the form of title in which a married couple holds property. The court also clearly held that a “joint tenancy deed, by itself, does not suffice” to prove that a married couple has validly transmuted community property to separate property. Thus, the trial court’s finding that the Trenks “held title” to the Residence as “joint tenants” does not show that the court found that the Residence in fact was separate property.

Under the plain language of Family Code section 760, the presumption that particular property belongs to the community applies whenever the property is “acquired by a married person during the marriage while domiciled in this state.”  This presumption cannot be rebutted by the form in which title is taken.

The appellate court concluded that Appellants failed to rebut the statutory presumption that the Trenks held the Residence as community property. Because Dinah did not execute the Trust Deed, the deed was voidable and the trial court properly canceled it.

In sum:

A power of sale in a trust deed is enforceable even if the statute of limitations has run on the underlying obligation. Because the trust deed here did not state the last date for payment under the promissory note, under section 882.020, subdivision (a)(2) Appellants would have 60 years to exercise the power of sale in the trust deed… The Residence presumptively is community property. Appellants did not rebut that presumption at trial. Because Dinah did not execute the trust deed, she has the power to void it.

The appellants here thought that their California trust deed secured Trenk’s debt he owed due to the malpractice settlement.  California’s community property laws ultimately quashed their claim, since the spouse did not join in the trust deed.

Los Angeles County

Stewart J. Levin

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