Most people would be surprised how frequently a homeowner discovers that there is an unexpected Deed of Trust (DOT) against their property. Often times, the continued existence of the DOT is the result of a lender’s or trustee’s failure to reconvey the DOT following satisfaction of a loan. On other occasions, the DOT’s presence (as might be seen in a preliminary title report) is the result of an unpaid loan evidenced by a promissory note that is no longer actionable. One possible key issue under both of these circumstances is whether the statute of limitations for the DOT has expired.
A DOT is an agreement between a lender and a borrower to transfer an interest in the borrower’s real property to a neutral third party, a trustee, to secure the payment of a debt by the borrower. A DOT is a recordable instrument and serves as a tool to sell the property if the borrow defaults.
California Civil Code §882.020 provides that a DOT has a statute of limitations of 60 years following the DOT’s recording if the DOT neither includes a copy of an underlying promissory note nor indicates the date the obligation matured. Otherwise, the statute of limitations is 10 years from the maturity date.
There have been some creative, but unsuccessful arguments to undermine the 60-year statute of limitation after a DOT of was recorded. One of the more interesting attempts was exemplified in the California Appellate case of Schmidli v. Pearce.
In Schmidli v. Pearce, Mrs. Pearce loaned money to her brother in 1990. The loan was secured by a DOT recorded against her brother’s property. The DOT did not include a copy of an underlying promissory note nor did it indicate the date the obligation matured. The brother ultimately defaulted on the loan.
Following the default, Mrs. Pearce began the non-judicial foreclosure process and recorded a Notice of Default (“NOD”), which stated stating that the amount owed as of 1993. Strangely, Mrs. Pearce took no further action.
Over a decade later, a lawsuit was filed seeking a declaration that the DOT had been extinguished. The lawsuit was premised on the idea that a DOT expires 10 years after the last date fixed for payment of the debt if that date is “ascertainable from the record.” Plaintiff argued that “the record” was any recorded document, not just the DOT, relying on the California Appellate decision of Slintak v. Buckeye Retirement Co.
The Schmidli Court rejected the logic of the Slintak Court, noted that under plaintiff’s theory the simple act of recording a NOD could eliminate a lender’s ability to pursue a nonjudicial foreclosure, and held that the recording of a NOD did not change the statute of limitations for a DOT. The Schmidli Court’s decision was consistent with the recent amendment of Civil Code §882.020 by the California Legislature, which changed the language of the statute from “[the final maturity date] is ascertainable from the record” to “[the final maturity date] is ascertainable from the recorded evidence of indebtedness” (i.e. the DOT).
Should you have any questions about Deeds of Trust, or any other real estate-related issue, please contact us at 408-290-8228. We look forward to assisting you.