Is a Deed of Trust the Same as a Mortgage? Not in California

A Plaintiff borrower appealed a judgment from the Superior Court of Alameda County (California), which sustained a demurrer to the borrower’s complaint challenging the validity of a non-judicial foreclosure by defendants, the beneficiary under the deed of trust and the loan servicer.

In Haynes v. EMC Mortgage Corporation (Cal. App. First Dist., Div. 4; April 24, 2012) 205 Cal.App.4th 329, 337, [140 Cal.Rptr.3d 32,38] an assignment of the beneficial interest under the deed of trust had not been recorded prior to the foreclosure. The court held that the recording requirement for mortgage assignments set forth in Civ.Code §2932.5, was inapplicable to deeds of trust by the statute’s plain language and California case law.

Civil Code §2932.5 states: “Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.”

In Haynes, a deed of trust was assigned but not recorded, and the sole issue presented on appeal was whether the provisions of section 2932.5, requiring the assignee of a mortgagee to record the assignment before exercising a power to sell the real property, apply to deeds of trust as well as mortgages.

Although some federal courts had held to the contrary, the court observed that their decisions were not binding on California’s courts. Despite rumblings in federal courts about applying 2932.5 to deeds of trust as well as mortgages, the Court of Appeal held firm: “We are cognizant that there continues to be a controversy among the various federal courts concerning whether section 2932.5’s limitation to mortgages continues to be viable given the similarities between mortgages and deeds of trusts. The issue is one that the Legislature may wish to consider.” Haynes 205 Cal.App.4th at 335, [140 Cal.Rptr.3d at 37].

The court concluded that where a deed of trust was involved, the trustee could initiate foreclosure irrespective of whether an assignment of the beneficial interest had been recorded. The Haynes Court made clear that the purpose of §2932.5 was to maintain a clear record of title by requiring mortgagees, given the power to sell real property, to record assignments of that right. Without such recording, a purchaser would be at risk of buying an encumbered title. In contrast, a deed of trust passed legal title to the trustee, thus enabling the trustee to transfer a marketable record title. Accordingly, there was no requirement that the assignment of the beneficial interest be recorded prior to the institution of non-judicial foreclosure.