Motion-Secondary: BANK OF AMERICA, NATIONAL ASSOCIATION AS SUCCESSOR VS. STEPHANIE NAIFEH et al

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                                PARKER IBRAHIM & BERG LLC

COSTA MESA

JOHN M. SORICH (CA Bar No. 125223)
John.Sorich@piblaw.com

HEATHER E. STERN (CA Bar No. 217447)
Heather.Stern@piblaw.com

JENNY L. MERRIS (CA Bar No. 246088)
Jenny.Merris@piblaw.com

PARKER IBRAHIM & BERG LLP

695 Town Center Drive, 16" Floor

Costa Mesa, CA 92626

Tel: (714) 361-9550

Fax: (714) 784-4199

Attorneys for Plaintiff

ELECTRONICALLY

FILED

Superior Court of California,
County of San Francisco

08/31/2018
Clerk of the Court
BY: VANESSA WU
Deputy Clerk

U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE,
SUCCESSOR IN INTEREST TO BANK OF AMERICA,
NATIONAL ASSOCIATION AS TRUSTEE AS SUCCESSOR

BY MERGER TO LASALLE BANK, NATIONAL

ASSOCIATION AS TRUSTEE FOR WAMU MORTGAGE
PASS-THROUGH CERTIFICATES SERIES 2007-HY6 TRUST

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF SAN FRANCISCO

BANK OF AMERICA, NATIONAL
ASSOCIATION AS SUCCESSOR BY
MERGER TO LASALLE BANK NA AS
TRUSTEE FOR WAMU MORTGAGE PASS
THROUGH CERTIFICATES SERIES 2007-
HY06 TRUST,

Plaintiffs,
v.

STEPHANIE NAIFEH, an individual; SAM
SEGALL, an individual; STEPHEN ANDREW
EASTERLY, an individual; ADAM J. WHITE,
an individual; ANDREA S. WHITE, an
individual, ALL PERSONS UNKNOWN
CLAIMING ANY LEGAL OR EQUITABLE
RIGHT, TITLE, ESTATE, LIEN, OR -
INTEREST IN THE PROPERTY KNOWN AS
49 ZOE STREET #15, SAN FRANCISCO,
CALIFORNIA 94107; and DOES 1 through 50,
inclusive,

Defendants.

{00384890 DOCK 2)

CASE NO.: CGC-11-509805

Assigned For All Purposes To:
Hon. Newton J, Lam

NOTICE OF ERRATA RE:
ATTACHMENT TO PLAINTIFF'S
MEMORANDUM IN SUPPORT OF
MOTION FOR SUMMARY
ADJUDICATION

DATE: September 11, 2018

TIME: 9:00 a.m.

DEPT.: 303

TRIAL DATE: November 5, 2018

ACTION FILED: April 4, 2011PARKER IBRAHIM & BERG LLC

Costa MESA

TO THE COURT, ALL PARTIES AND THEIR ATTORNEYS OF RECORD:

PLEASE TAKE NOTICE THAT the Attachment to the Memorandum of Points and
Authorities of Plaintiff U.S. Bank National Association, as Trustee, Successor in Interest to Bank of
America, National Association as Trustee as Successor by Merger to LaSalle Bank, National
Association as Trustee for WaMu Mortgage Pass-Through Certificates Series 2007-HY6 Trust
(“Plaintiff’ or “U.S. Bank”) in support of its Motion for Summary Adjudication (“Motion”), is an
unmodified copy of the Court of Appeal Opinion and there were subsequent modifications made.
Attached as Exhibit 1 is a copy of the Order Modifying Opinion and Denying Petition for Reheating
[No Change in Judgment] that was filed August 17, 2016. Attached as Exhibit 2 is a copy of the
opinion as generated by Westlaw. Plaintiff lodges these documents for additional reference in

connection with the Motion.

DATED: August 31, 2018

JENNY L. MERRIS

Attorneys for Plaintiff U.S. BANK NATIONAL
ASSOCIATION, AS TRUSTEE, SUCCESSOR.
IN INTEREST TO BANK OF AMERICA,
NATIONAL ASSOCIATION AS TRUSTEE AS
SUCCESSOR BY MERGER TO LASALLE
BANK, NATIONAL ASSOCIATION AS
TRUSTEE FOR WAMU MORTGAGE PASS-
THROUGH CERTIFICATES SERIES 2007-
HY6 TRUST

{ooxt890 DOCK 2 2

NOTICE OF ERRATA RE: ATTACHMENT TO PLAINTIFF'S MEMO. OF P'S AND A'S RE: MSAEXHIBIT 1COPY

Filed 7/19/16, Mod. filed 8/17/16
CERTIFIED FOR PARTIAL PUBLICATION®
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
U.S, BANK NATIONAL ASSOCIATION |
AS TRUSTEE FOR WAMU MORTGAGE |

PASS-THROUGH CERTIFICATES |
SERIES 2007-HY6 TRUST, A142994

Plaintiff and Respondent,

ORDER MODIFYING OPINION
¥. AND DENYING PETITION FOR
STEPHANIE NAIFEH et al., REHEARING

U
Defendants and Appellants. INO. CHANGE IN JUDGMENT]
(San Francisco City and County
Super. Ct. No. CGC-11-509805)

BY THE COURT:

It is ordered that the opinion filed herein on July 19, 2016, be modified as follows:

1. On page 7, replace the text in the footnote to the third full paragraph (appearing
in the original opinion as footnote 4) with the following: “The parties do not dispute that
on January 11, 2011, after BofA purportedly obtained title to the Property, respondent
succeeded BofA as trustee of the HY06 Trust.”

2. On page 23, in the third paragraph, replace the second sentence with the
following: “Chase obtained certain rights with respect to the Loan pursuant to the 2008
transaction with the FDIC as receiver for WaMu; the March 2009 Assignment of Deed of

Trust identified Chase as successor to WaMu and recorded the assignment of all

* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion remains
certified for publication with the exception of parts II.B., IJ.C, and ILD.beneficial interest under the deed of trust to BofA; and respondent became successor in
interest to BofA.”

3. On page 24, at the end of the first full paragraph, add the following new
footnote (with all following footnotes renumbered accordingly):

“Appellants contend there is no evidence that the Loan was securitized and transferred
into the trust by 2007 (if ever). According to appellants, the transfer could not have been
accomplished by the 2009 Assignment of Deed of Trust by Chase, since the assignment
is in the present tense (pertaining to 2009) and Chase had no beneficial interest in the
Loan that could be transferred to the trust (or to BofA). For this latter reason, appellants
also argue there is no evidence that any interest in the Loan was ever effectively assigned
to BofA. Appellants are incorrect. The 2009 Assignment of Deed of Trust was not the
vehicle by which the Loan was assigned to the trust; it evinced that the Loan had
previously been transferred to the trust, and by 2009 the trustee was changed from
LaSalle Bank to Bank of America. Chase—the servicer of the trust—would not need a
beneficial interest in the Loan to make the assignment from one trustee to another. On its
face, the Assignment of Deed of Trust shows that BofA (as trustee of the trust) held, by
March 2009, all beneficial interest in the Loan, which had been placed into the trust.”

4. On page 25, replace the text of the second paragraph with the following: “We
agree with the predominant view that a transfer into the securitized trust in purported
violation of the terms of a PSA would render the assignment voidable rather than void; in
the absence of a successful challenge by a party to the PSA, the assignment is valid and,
therefore, appellants cannot argue that the transfer was ineffective on this ground.”
Retain the footnote appearing in the original opinion as footnote 12 at the end of the new
paragraph.

The modification effects no change in the judgment.

The petition for rehearing is denied,

Jones, P.J.

Date:

Jones, P.J.Superior Court of the City and County of San Francisco, No. CGC-11-509805, Marla
Miller, Judge.

Sheik Law, Mani Sheik; Murchison & Cumming. John Podesta, and Jennifer K. Letulle
for Defendant and Appellant.

Parker Ibrahim & Berg, John M. Sorich, Jenny L. Merris, Heather E. Stern; Alvarado &
Smith, and Theodore E. Bacon for Plaintiff and Respondent.EXHIBIT 2U.S. Bank National Assn. v. Naifeh, 1 Cal.App.5th 767 (2016)
205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily Journal DAR. 7340

1 Cal.App.5th 767
Court of Appeal,
First District, Division 5, California.

U.S. BANK NATIONAL ASSOCIATION as Trustee
for WaMu Mortgage Pass—Through Certificates.
Series 2007—HY6 Trust, Plaintiff and Respondent,

v.
Stephanie NAIFEH, et al., Defendants and
Appellants.

A142994
|
Filed 7/19/2016

As Modified on Denial of Rehearing August 17,
2016

Review Denied November 9, 2016

|
Certified for Partial Publication.

Synopsis

Background: Trustee of deed of trust filed verified
complaint against trustor and alleged owner of property,
to whom trustor had purportedly transferred title,
asserting cause of action for cancellation of instruments,
stemming from trustor’s recording of false documents
pertaining to loan transaction for property and transfer of
title. Following bench trial, the Superior Court, San
Francisco City and County, No. CGC-11-509805, Marla
Miller, J., denied motion to dismiss filed by trustor and
alleged owner, rejected affirmative defenses for rescission
under Truth in Lending Act (TILA) and lack of standing
or unclean hands, and entered judgment in favor of
trustee, Trustor and alleged owner appealed.

Holdings: The Court of Appeal, Needham, J., held that:

"| evidence supported conclusions that documents were
void or voidable due to fraud and that trustee would suffer
pecuniary loss and prejudicial change of position if
documents were not cancelled; but

"fact that lawsuit was not filed within three-year period
under TILA to rescind loan transaction did not render
rescission notice untimely;

"I trial court had authority to decide whether notice was

timely and whether procedure for rescission under TILA
should be modified; and

‘41 ial court was required on remand to consider
affirmative defense of rescission.

Vacated and remanded with directions.

West Headnotes (7)

"Cancellation of Instruments

e=Invalidity of instrument
Cancellation of Instruments
v=Injury sustained or anticipated

To prevail on claim to cancel an instrument,
plaintiff must prove: (1) instrument is void or
voidable due to, for example, fraud, and (2)
there is a reasonable apprehension of serious
injury including pecuniary loss or prejudicial
alteration of one’s position. Cal. Civ. Code §
3412.

8 Cases that cite this headnote

a

Mortgages and Deeds of Trust
Weight and sufficiency
Mortgages and Deeds of Trust
Title

Mortgages and Deeds of Trust
Weight and sufficiency

Substantial evidence supported trial court’s
conclusions that documents recorded by trustor
of deed of trust, which purported to show that
trustor owed nothing on residential loan and was
released from mortgage debt, that trustee’s deed
upon sale recorded pursuant to foreclosure sale
was rescinded, and that title to property had
been transferred to new owner, were void or
voidable due to fraud and that trustee would
suffer pecuniary loss and prejudicial change of
position if fraudulent documents were not
cancelled, as required for trustee to prevail on
cancellation of instruments claim; evidenceU.S. Bank National Assn. v. Naifeh, 1 Cal.App.Sth 767 (2016)

205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily JounalD.AR.7340

BI

i

WEST

showed that trustor did not have authority she
claimed to execute and record documents, and
evidence demonstrated that trustee had title to
property, that documents recorded before
foreclosure sale affected amounts recovered on
loan, and that documents recorded after sale
deprived trustee of clear title. Cal. Civ. Code §
3412.

7 Cases that cite this headnote

Finance, Banking, and Credit
Conditions; tender or return of consideration
received

Unlike rescission at common law, procedure for
borrower to rescind loan transaction pertaining
to principle dwelling set forth in TILA does not
require borrower to tender loan proceeds first,
thus giving leverage to borrowers and exposing
lenders to situations in which borrower has no
funds to return the principal while the debt is no
longer secured. Truth in Lending Act § 125,15
US.C.A. § 1635¢b).

Cases that cite this headnote

Finance, Banking, and Credit
vRescission and cancellation in general

By turing to court pursuant to TILA provision
stating that procedures for borrower to rescind
loan transaction pertaining to borrower's
principle dwelling apply except when otherwise
ordered by court, lender may change its fortunes
in at least two ways: (I) it may challenge
validity of rescission, that is, whether there was
a failure to disclose information, such that the
time for rescission under TILA was extended to
three years, and (2) whether or not lender agrees
that the rescission was timely and valid, it may
request that a different procedure be used to
effectuate the rescission remedy. Truth in
Lending Act §§ 125, 125, 15 US.C.A. §§
1635(b),  1635(f); 12 CER. §§ 226.23,
226.33(b), 1026.23(a)(3)(i).

51

161

1 Cases that cite this headnote

Finance, Banking, and Credit
&»Time for rescission or cancellation

Fact that borrower did not file lawsuit within
three-year period under TILA to rescind loan
transaction pertaining to principle dwelling did
not render borrower's rescission notice
untimely, since borrower’s notice occurred
within three-year period, and borrower was
permitted to rescind loan transaction under
TILA without filling lawsuit. Truth in Lending
Act §§ 125, 125, 125, 15 U.S.C.A. §§ 1635(a),
1635(b), 1635(; 12 C.F.R. §§ 226.33(b),
1026.23 (a3 ti).

2 Cases that cite this headnote

Finance, Banking, and Credit

Time for rescission or cancellation
Finance, Banking, and Credit

@=Manner of exercising right to rescission or
cancellation; lender's response

Trial court had authority to decide whether
notice under TILA rescinding loan transaction
pertaining to principle dwelling filed by trustor
of deed of trust was timely and whether
procedure for rescission set forth in TILA
should be modified in light of facts and
circumstances of the case once notice was
contested, and thus trustor’s notice did not have
automatic effect of rescinding transaction, so as
to divest trustee of its security interest in
property, render foreclosure sale void, and
deprive trustee of standing to pursue its claims
for cancellation of instruments against trustor,
stemming from trustor’s recording of false
documents pertaining to loan and property;
permitting trial court to have such authority
accomplished legislative goals under TILA,
including returning parties to status quo in a
manner consistent with facts and equities of the
particular situation. Truth in Lending Act §§
125, 125, 125, 15 U.S.C.A. §§ 1635(a), 1635(b),
1635(f); 12 C.F.R. §§ 226.23, 226.33(b),

verninent WorksU.S, Bank National Assn. v. Naifeh, 1 Cal.App.Sth 767 (2016)

205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily Journal DAR. 7340

1026,23(a)(3)(i); Cal. Civ. Code § 3412.

Cases that cite this headnote

Appeal and Error
“Issues not addressed below in general

Trial court was required on remand to consider
affirmative defense of rescission under TILA
asserted by trustor of deed of trust and alleged
owner of residential property, to whom trustor
purportedly transferred title to property, and
determine whether there was timely rescission
of loan transaction pertaining to property by
trustor, which would require proof that
disclosures required by TILA were not provided,
so as to extend rescission period to three years,
in cancellation of instruments action filed by
trustee, stemming from trustor’s recording of
false documents pertaining to loan and property;
by raising rescission issue as affirmative
defense, trustor and alleged owner placed at
issue whether there was, in fact, a timely
rescission, and issue had not yet been decided by
trial court. Truth in Lending Act §§ 125, 125,
125, 15 ULS.C.A. §§ 1635(a), 1635(b), 1635(D;
12 CFR. 226.23, 226,33(b),
1026.23(a)(3)(i), Cal. Civ. Code § 3412,

See 3 Witkin. Cal. Procedure (5th ed. 2008)
Actions, § 491.

Cases that cite this headnote

**122 Superior Court of the City and County of San
Francisco, No. CGC-11-509805, Marla Miller, Judge.
(San Francisco City and County Super. Ct. No.
CGC-11-509805)

Attorneys and Law Firms

Sheik Law, Mani Sheik, San Francisco; Murchison &
Cumming, John Podesta and Jennifer K. Letulle, San
Francisco, for Defendant and Appellant.

Parker Ibrahim & Berg, John M. Sorich, Jenny L, Merris,

WESTLAW 1 Reuters, No.glaan t

Heather E. Stern, Costa Mesa; Alvarado & Smith, and
Theodore E. Bacon, Los Angeles, for Plaintiff and
Respondent.

Opinion
**123 NEEDHAM, J.

Stephanie *771 Naifeh, Stephen Easterly, and Sam Segall
appealed from a judgment entered against them for
cancellation of written instruments. (Civ. Code, § 3412.)
U.S. Bank National Association (U.S. Bank or
respondent) alleged that Naifeh and Segall had
fraudulently signed and recorded numerous documents,
which purported to divest respondent of title to the real
property it had obtained through the foreclosure process
after Naifeh defaulted on her loan, Appellants, on the
other hand, argued that Naifch had rescinded the loan
transaction pursuant to the Truth in Lending Act (TILA,
15 U.S.C. § 1601 ct soq.), the relevant security interest
was therefore void, and for this and other reasons
respondent had no interest in the property.

Appellants contend (1) the trial court erred in ruling that
Naifeh’s notice of rescission was insufficient to rescind
the loan transaction; (2) respondent should not have been
allowed to pursue its cancellation of instruments claims,
because even if the court properly allowed an amendment
at trial to substitute respondent for its predecessor in
interest, respondent omitted a quiet title claim *772 from
its amended pleading; (3) respondent did not have
standing to seek cancellation of the instruments because it
had no interest in the real property, due to the absence of
any timely lawful assignment; and (4) the court made a
number of erroneous procedural rulings.

Because of a decision issued by the United States
Supreme Court after the trial court’s ruling in this case,
we will vacate the judgment and remand for further
proceedings, including the adjudication of appellants’
affirmative defense of rescission,

In the portion of the opinion certified for publication, we
conclude that a borrower may rescind the loan transaction
under the TILA without filing a lawsuit, but when the
rescission is challenged in litigation, the court has
authority to decide whether the rescission notice is timely
and whether the procedure set forth in the TILA should be
modified in light of the facts and circumstances of the
case. In the portion of the opinion not certified for
publication, we conclude that appellants’ remaining
arguments lack merit.U.S. Bank National Assn. v. Naifeh, 1 Cal.App.Sth 767 (2016)
205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily Journal DAR. 7340

I. FACTS AND PROCEDURAL HISTORY

A. The Loan and Foreclosure

In March 2007, Naifeh and Dusan Ristic obtained a
$500,000 residential loan (Loan) from Washington
Mutual Bank, FA (WaMu), in connection with certain real
property in San Francisco (Property). The note was
secured by a deed of trust recorded against the Property
on April 6, 2007. The deed of trust identified WaMu as
the lender and beneficiary, California Reconveyance
Company (CRC) as the trustee, and Naifch and Ristic as
the borrowers.

Before the loan closed, WaMu gave Naifeh and Ristic
what purported to be a disclosure of the loan terms as
required by the TILA. (See 15 U.S.C. § 1635.) As
discussed post, Naifeh contends the TILA disclosures
were deficient,

1, Chase Becomes the Loan Servicer

On or about May 1, 2007, WaMu entered into a “Pooling
and Servicing Agreement” pursuant to which the Loan
(along with other loans) was securitized and, at some
point, placed into the “WaMu Mortgage Pass-Through
Certificate Series 2007-HY~6 Trust.” The Pooling and
Servicing Agreement defined WaMu as the servicer of the
trust, with authority to foreclose.

By *773 September 25, 2008, the Federal Deposit
Insurance Corporation (FDIC) **124 placed WaMu into
receivership. On or about that date, JPMorganChase,
National Association (Chase) acquired certain assets and
liabilities of WaMu from the FDIC, as receiver for
WaMu, including WaMu’s interest in the Loan.
Respondent contends that Chase became the servicer of
the Loan, and Chase possessed the records related to the
Loan and the original note.

2. Assignment to Bank of America, NA, as Trustee of the
HY06 Trust

An “Assignment of Deed of Trust” recorded on March 31,
2009, states that Chase, as successor in interest to WaMu,
assigned “all beneficial interest” under the deed of trust to
“Bank of America, National Association as successor by
merger to ‘LaSalle Bank NA as trustee for WaMu
Mortgage Pass-Through Certificates Series 2007-HY06
Trust’ ” (BofA).

3. Naifeh’s and Ristic’s Default

Meanwhile, Naifeh defaulted on the Loan in 2008 by
failing to make payments. A “Notice of Default and
Election to Sell Under Deed of Trust” was recorded by
trustee CRC on March 31, 2009.

In 2008 and 2009, Naifeh sought a modification of the
Loan. WaMu denied the modification request. Chase
purportedly offered a modification, but no modification
was ultimately agreed upon.

On July 10, 2009, a “Notice of Trustee’s Sale” was
recorded, stating that the Property would be sold at a
public auction later that month. The trustee’s sale was
postponed to May 2010,

4. Naifeh’s Notice of Rescission

After the notice of trustee’s sale, Naifeh sent a letter to
CRC on July 18, 2009, with copies to the “CFO” of
WaMu and the “CFO” of Chase, notifying them that she
and Ristic were rescinding the loan pursuant to
“Regulation Z” (12 C.F.R. § 226.33(b)) based on certain
deficiencies in the TILA disclosures. A similar letter,
dated July 20, 2009, attached a rescission form signed by
Naifeh and Ristic. Naifeh contends that WaMu, Chase,
and CRC received the rescission notice but took no
action.

On December 18, 2009, Naifeh sent another rescission
notice to WaMu, Chase, and CRC, purportedly pursuant
to the TILA. That same month, she sent a written request
to CRC, WaMu, Chase, and others for verification of the
debt.

USU.S. Bank National Assn. v. Naifeh, 1 Cal.App.sth 767 (2016)
205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily JournalD.AR.7340 =~”

In *774 January 2010, Naifeh learned that the note and
deed of trust had purportedly been transferred from Chase
to BofA. According to Naifeh, she sent “Bank of
America” copies of her rescission notices and debt
verification request. The bank acknowledged receipt of
the notices and asked Naifeh for the property address,
account number, and other identifying information, but
then told her it could not find any records related to the
property other than old mortgages that had already been
paid off.

Naifeh sent follow-up letters to the “CFO” of “Bank of
America, NA,” as well as to WaMu, Chase and CRC on
January 20, 2010, January 27, 2010, and February 2,
2010. On March 24, 2010, she sent further
correspondence to Chase, CRC, and Chase’s attorneys,
inquiring about a variety of matters including the location
and validity of the note and deed of trust, and proposing
to “settle and close this matter.”

5. Naifeh’s Recording of False Documents

Beginning in April 2010—the month before the scheduled
foreclosure sale of the Property—Naiféh and a friend
(appellant Segall) caused several documents to be
recorded with the county recorder, by which Naifeh
purported to show she owed **125 nothing on the Loan
and was released from the mortgage debt.'

Specifically, on April 5, 2010, Naifeh recorded a
“Substitution of Trustee,” which she signed with the false
representation that she was an “authorized representative”
of CRC. The document purported to substitute Segall as
trustee under the deed of trust, in place of CRC.

On April 20, 2010, Naifeh and Segall recorded a
“Modification of Deed of Trust,” which Segall signed as
“Authorized Agent, Trustee” and Naifeh signed as
“Trustor, Authorized Representative.” The Modification
of Deed of Trust, falsely purporting to be an agreement
between Naifch and Chase, stated that the deed of trust
had “erroncously set forth the amount of indebtedness
secured thereby as being $500,000," and modified the
deed of trust “to correctly reflect the amount of
indebtedness secured thereby to be zero dollars ($0.00)
and to reflect a status of ‘paid as agreed.”

On April 26, 2010, Naifeh recorded a “Full
Reconveyance,” which Segall falsely executed as

“Trustee/Authorized Agent,” and which purported to
reconvey the deed of trust and reflect satisfaction of
Naifeh’s debt.

On *775§ May 25, 2010, Naifeh recorded another
Substitution of Trustee “to reflect correction of” the
substitution of trustee recorded on April 5, 2010. In this
document, Naifeh falsely executed the Substitution of
Trustee as “Trustor/Beneficiary” of BofA (that is, “Bank
of America, National Association as Successor by Merger
to LaSalle Bank NA as Trustee for WAMU Mortgage
Pass-Through Certificates Series 2007-HY06") and
appointed Segall as trustee “in place and instead of said”
CRC,

6. Foreclosure Sale

Naifeh was present at the trustee’s sale on May 24, 2010.
She handed out “buyer beware” notices representing that
the trustee knew there were contrary claims to title. No
one bid on the Property.

A “Trustee’s Deed Upon Sale” was recorded on June 2,

2010, pursuant to which CRC, as trustee under the deed of
trust, granted title to the Property to BofA.

7. Naifeh’s Recording of More False Documents

On June 11, 2010, Naifeh recorded a document entitled,
“Rescission of Trustee’s Deed.” This document did not

vassert that Naifeh had rescinded the Loan or that the

security interest had accordingly become void. Instead,
Segall, falsely representing himself to be the trustee under
the deed of trust, declared that: (1) the Trustee’s Deed
Upon Sale to BofA, recorded on June 2, 2010, “is hereby
rescinded for the reason that Sale was mistakenly
conducted without authorization of Beneficial Interest
Holder, reference California. UCC File No.
10-7227117967”"; and (2) as to the deed of trust recorded
on April 6, 2007, Segall (as trustee) “does hereby revoke
said deed and declare that henceforth said deed shall not
have any further force and effect having been revoked by
this instrument, executed, acknowledged, and recorded.”
In short, this document purported to eliminate both the
deed of sale by which BofA held title and the original

__deed of trust that soured Naifeh’s indebtedness.U.S. Bank National Assn. v. Naifeh, 1 Gal.App.5th 767 (2016)
205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily Journal D.A.R. 7340

**126 Next, having ostensibly obliterated BofA’s interest
in the Property, Naifeh transferred the Property to
appellant Easterly. An “Agreement for Sale,” recorded on
October 15, 2010, and purportedly entered into by Naifeh
and Easterly on October 12, 2010, referenced the sale of
the Property from Naifeh (as “Owner/Seller”) to Easterly.
Attached as an exhibit was a “Purchase Agreement”
signed by Naifeh and Easterly; appellants Adam White
and Andrea White signed as witnesses.

Naifeh then executed and recorded a “Warranty Deed” on
November 4, 2010, purporting to transfer title to the
Property to Easterly for “value received,” which *776 was
specified to be “equivalent to $407,500 U.S. Dollars.”
Adam White and Andrea White signed as witnesses to
Naifeh’s signature.

On December 30, 2010, Segall recorded an agreement and
“Power of Attorney,” by which Easterly granted Segall a
power of attomey. A rental agreement, by which Easterly
rented the Property to Adam White, was executed on
January 18, 2011.

B, BofA’s Lawsuit
On April 4, 2011, BofA filed a verified complaint against
Naifeh, Segall, Easterly, Adam White, and Andrea White,
asserting eight causes of action for cancellation of
instruments, as well as causes of action to quiet title, for
declaratory relief, and for injunctive relief.

Easterly, Segall, and Adam White answered the
complaint. Naifeh and Andrea White did not respond, and
defaults were entered against them. Naifeh moved to set
aside the default multiple times, but the motions were
denied. However, no default judgment was entered
against Naifeh, and she was present at trial and testified as
a witness.’

1. Trial

A bench trial commenced on January 27, 2014, with
BofA as the named plaintiff; after several days of trial,
closing arguments were heard on July 1, 2014. The
proceedings included the following.

a, Amendment Adding U.S. Bank and Omitting Quiet Title
Claim

On January 27, 2014, BofA sought leave to amend the
complaint to reflect a new trustee of the HY06 trust,
replacing BofA with “U.S. Bank National Association, as
Trustee, successor in interest to Bank of America,
National Association as Trustee as successor by merger to
LaSalle Bank, National Association as Trustee for WaMu
Mortgage Pass-Through Certificates Series 2007-HY6
Trust.”

Counsel represented that the proposed amended complaint
would differ only in the name of the plaintiff, and U.S.
Bank would be asking title to be quieted *777 in its favor.
The trial court granted leave to amend on March 5, 2014,
finding no prejudice to appellants.*

The first amended complaint was filed on March 14,
2014. The pleading reflected not only a change in the
plaintiff (from BofA to U.S. Bank), but also the omission
**127 of the quiet title cause of action. The trial court
dismissed the quiet title cause of action as to former
plaintiff BofA. (See Code Civ. Proc., § 581, subd. (d).)

Appellants moved to dismiss the action altogether,
arguing that the dismissal of the quiet title claim had a res
judicata effect and required the dismissal of ancillary
claims such as cancellation of instruments. The motion
was denied.

b. Respondent U.S. Bank’s Contentions at Trial

Respondent U.S. Bank produced evidence that the eight
documents recorded by Naifeh and Segall were
unauthorized, fraudulent, and void. The documents were
not in Chase’s files, suggesting they were not executed by
or at the direction of Chase. In addition, Naifeh and Segall
were not authorized to execute documents on CRC’s
behalf, and they were neither employed by Chase nor
authorized to execute documents on Chase’s behalf. And
Naifeh was not authorized to execute documents on
behalf of BofA.U.S. Bank National Assn. v. Naifeh, 1 Cal.App.5th 767 (2016)
205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily Journal DAR. 7340

c. Appellants’ Contentions at Trial

Appellants contended, among other things, that
respondent was not entitled to prevail based on two
affirmative defenses: rescission under the TILA, and lack
of standing or unclean hands. Rescission was appropriate,
appellants argued, because the TILA disclosures were
deficient in several respects: they were not grouped
together and segregated from other information; the
finance charge and annual percentage rate were not more
conspicuous than the other loan terms; there was no
disclosure of the creditor; and several key items required
for an Adjustable Rate Mortgage (ARM) were not
disclosed (including notification of the rate cap, a
historical example, and an ARM brochure highlighting
the risks of an ARM).° Moreover, appellants maintained,
Naifch’s notice of rescission automatically rendered the
security interest in the Property void, precluded the
foreclosure sale, and precluded respondent from
prevailing on the cancellation of instruments claims,

2. Trial *778 _Court’s Statement of Decision

After the trial court issued a “Tentative Statement of
Decision” and appellants filed an objection, the court
issued its final Statement of Decision on August 21, 2014.

In its Statement of Decision, the court found that
respondent had standing to pursue the lawsuit, was
injured by appellants’ recording of the fraudulent
documents, and proved its cancellation claims, In
addition, the court rejected appellants’ affirmative
defenses: the notice of rescission sent by Naifeh under the
TILA did not effect a rescission; and appellants did not
establish an unclean hands defense because U.S. Bank
had standing and it was Naifeh and Segall who tried to
“wipe out the lien by pretending to be authorized agents
or employees of CRC or Bank of America or JPMorgan
Chase.” The court concluded: “This is not a strong
position from which to argue that Plaintiff has unclean
hands.”

The trial court observed that, although the first amended
complaint sought declaratory relief and injunctive relief,
respondent’s proposed statement of decision did not seck
relief on those claims. The court did not address them.

Judgment was entered in favor of respondent. This appeal
followed.

Il. DISCUSSION

The sole cause of action respondent pursued at trial was
for cancellation of instruments; **128 ‘specifically, eight
claims for cancellation of instruments, one for each
document recorded by Naifeh or Segall.

"lUnder Civil Code section 3412, “[a] written instrament,
in respect to which there is a reasonable apprehension that
if left outstanding it may cause serious injury to a person
against whom it is void or voidable, may, upon his
application, be so adjudged, and ordered to be delivered
up or canceled.” To prevail on a claim to cancel an
instrument, a plaintiff must prove (1) the instrument is
void or voidable due to, for example, fraud; and (2) there
is a reasonable apprehension of serious injury including
pecuniary loss or the prejudicial alteration of one’s
position. (See Turner v. Turner (1959) 167 Cal.App.2d
636, 641, 334 P.2d 1011.)

"Isubstantial evidence supported the conclusion that the
recorded documents were void or voidable due to fraud,
in that appellants did not have the authority they claimed
to execute and record the documents. Substantial evidence
also supported the conclusion that respondent would
suffer pecuniary loss and a prejudicial change of position
if the fraudulent documents were not *779 cancelled,
since respondent held title to the Property: respondent was
successor to BofA, and BofA had obtained title to the
Property by the trustee’s deed of sale. Furthermore,
Naifeh undisputedly failed to pay her obligations under
the Loan, Chase had obtained WaMu’s interest in the
Loan from the FDIC, and BofA had obtained all
beneficiary interest under Naifeh’s deed of trust (as
evinced by the recorded assignment executed by Chase),
providing a basis for the foreclosure proceeding against
Naifeh and the trustee’s deed of sale to BofA. The
fraudulent documents that appellants recorded prejudiced
respondent, since the documents they recorded before the
trustce’s sale affected the amounts recovered on the Loan,
and the documents they recorded after the trustee’s sale
deprived respondent of clear title to the Property.

Appellants contend, however, that the judgment in favor
of respondent should nonetheless be reversed because (1)
Naifch rescinded the Loan; (2) the omission of the quiet
title claim precluded the cancellation of instruments
claims; (3) respondent lacked standing because it actually
had no interest in the Property; and (4) the trial court
made procedural errors. We address each contention in

U.S, GovernrU.S. Bank National Assn. v. Naifeh, 1 Cal.App.Sth 767 (2016)
205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily JoumalD.AR. 7340

turn.

A. Naifeh’s Rescission Notice

As an affirmative defense to respondent's cancellation of
instruments claims, appellants asscrted that Naifeh
rescinded the Loan on July 18, 2009, and BofA’s security
interest in the Property automatically became void under
the TILA. As a result, appellants argue, the foreclosure
sale was void, and respondent, whose interest derived
from BofA, had no standing to complain about Naifeh’s
post-rescission fraudulent recordings.

Appellants insist this result is compelled by the United
States Supreme Court’s decision in Jesinoski v.
Countrywide Home Loans, Inc. (2015) —-U,S. +» 135
S.Ct. 790, 190 L.Ed.2d 650 (Jesinoski ). We summarize
relevant provisions of the TILA, consider Jesinoski and
other cases, and conclude we must remand for the trial
court’s further consideration.

1. Rescission Under the TILA

The TILA protects a consumer from fraud, deception, and
abuse by requiring the creditor to disclose to the
consumer certain information about the subject financing.
(5 USC, § 1601; see, eg, **129 12 CER. §§
1026.17-1026.23.)° It generally entitles a consumer who
has secured *780 a credit transaction with a lien on the
consumer’s principal dwelling (including the refinancing
of an existing mortgage) to rescind a loan transaction
within three business days. (§ 1635(a).) Moreover, the
rescission period is extended to “three years afier the date
of consummation of the transaction or upon the sale of the
property, whichever occurs first,” if the TILA disclosures
(including notice of the right to rescind) are not provided.
(§ 1635(f); 12. C.F.R. § 1026.23(a)(3){i).)

To exercise the right of rescission, the consumer must
notify the creditor of his or her intention to rescind “by
mail, telegram or other means of written communication.”
U2 CFR. § 1026.3(a)(2) (2016).) Notice is “considered
given when mailed ... to the creditor’s designated place of
business.” (Ibid.; see § 1635(a).)

The TILA sets forth a specific procedure for undoing the
transaction in section 1635(b). When the consumer

exercises the right to rescind, the consumer is “not liable
for any finance or other charge, and any security interest
given by the obligor ... becomes void upon such a
rescission.” (§ 1635(b). Italics added.) “Within 20 days
after receipt of a notice of rescission, the creditor shall
return to the obligor any money or property given as
earnest money, downpayment, or otherwise, and shall
take any action necessary or appropriate to reflect the
termination of any security interest created under the
transaction.” (§ 1635(b); see 12 C.F.R. § 226,23.) “Upon
the performance of the creditor’s obligations under this
section,” the consumer “shall tender the property to the
creditor, except that if return of the property in kind
would be impracticable or inequitable, the [consumer]
shall tender its reasonable value.” (§ 1635(b).)

“Thus, as with any rescission remedy, the intent is to
return the parties to the status quo ante. Unlike rescission
at common law, however, the procedure set forth in
section 1635(b) does not require the borrower to tender
first, thus giving leverage to consumers and exposing
lenders to situations in which the borrower has no funds
to return the principal while the debt is no longer secured,
(See Merritt v. Countrywide Financial Corp. (9th Cit.
2014) 759 F.3d 1023, 1030 (Merritt ).)

Furthermore, a creditor’s failure to comply with the
requirements of section 1635 subjects it to actual and
statutory damages, attorney’s fees, and costs. (§ 1640.)
And if the consumer tenders the property to the creditor,
the creditor must take possession of it within 20 days or
“ownership of the property vests in the [consumer]
without obligation on [the consumer’s] part to pay for it.”

(8 1635(b).)

‘However, after setting forth the rescission procedures
we have just described, Congress added the following
proviso: “The procedures prescribed by *781 this
subsection shall apply except when otherwise ordered by
a court.” (§ 1635(b), italics added, see 12 C.F.R. §
226.23.) By turning to the court, a lender may change its
fortunes in at least two ways. First, it may challenge the
validity of the rescission—that is, whether there was a
failure to disclose information, such that the time for
rescission under the TILA was extended to three years.
Second, whether or not the lender agrees that the
rescission was timely and valid, it may request that a
different procedure be used to effectuate the rescission
remedy: thus, courts have sometimes **130 required the
borrower to tender the loan proceeds first, before the
creditor must give up its security interest. (Sec, eg.
Yamamoto v. Bank of New York (9th Cir. 2003) 329 F.3d
1167, 1170-1173 (Yamamoto ).)U.S. Bank National Assn. v. Naifeh, 1 Cal.App.5th 767 (2016)
205 Cal.Rptr. 3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily Journal DAR. 7340

2. The Trial Court’s Decision

As mentioned, the trial court in this case rejected
appellants’ rescission defense on two grounds. First,
recognizing a split in authority but siding with the Ninth
and Tenth Circuit Courts of Appeals, the court concluded
that a notice of rescission is not, in itself, sufficient to
rescind, and that an actual lawsuit must be filed within the
three-year period: “Naifeh did not file a lawsuit to enforce
whatever rescission rights she had in a timely way, and
the Promissory Note and Deed of Trust were never
rescinded.”

Second, the court ruled, even if a mere notice of
rescission could suffice, in this case “the evidence does
not support [appellants’] position that the rescission was
self-executing and sufficient to justify recording the
Substitution of Trustee and subsequent documents
executed and/or recorded by [appellants], The court
concluded that “the mere sending of the notices did not
have the automatic effect of rescinding the transaction.”
And it rejected Naifeh’s proposition that rescission was
automatic because respondent (or its predecessors) had
acquiesced in it, since the evidence did not show an
acquiescence and, in fact, they were foreclosing on the
Property.

Appellants contend the court erred in light of Jesinaski,
supra, 135 S.Ct. 790.

3. Jesinoski

The United States Supreme Court issued its decision in
Jesinoski several months after the trial court’s decision. In
Jesinoski, the borrowers had sent a rescission letter three
years after refinancing their home, and the lender’s
successor did not acknowledge its validity. (Jesinoski,
supra, 135 $,Ct. at p. 791.) About a year later—four years
after the transaction originating the loan—the borrowers
filed a lawsuit seeking to enforce the rescission. (/bid.)
Like the trial court here, the federal district court *782
and the Eighth Circuit Court of Appeals concluded there
had been no rescission because the borrowers had not
filed a lawsuit within three years of the date of the loan’s
consummation. (/bid.)

WESTLAW ey fora, N

The Supreme Court reversed, holding that the borrower
need only send the notice of rescission, not file a lawsuil,
within the three-year period. The court explained that
section 1635(a) sets forth unequivocally how the right to
rescind is to be exercised: “It provides that a borrower
‘shall have the right to rescind ... by: notifving the creditor,
in accordance with regulations of the Board, of his
intention to do so’ (emphasis added). The language leaves
no doubt that rescission is effected when the borrower
notifies the creditor of his intention to rescind. It follows
that, so long as the borrower notifies within three years
after the transaction is consummated, his rescission is
timely. The statute does not also require him to sue within
three years.” (Jesinoski, supra, 135 S.Ct. at p. 792.)

4. Impact of Jesinoski on Naifeh’s Rescission Notice

a. Timeliness of Naifeh's Rescission Notice

"INaifeh’s notice of rescission occurted within the
three-year period, since her loan originated on March 14,
2007, and she sent her rescission notice on July 18, 2009,
Under Jesinoski, the fact that Naifeh did not file a lawsuit
within the three **131 year period does not render the
notice untimely.

b. Effect of Naifeh’s Rescission Notice

“Respondents urge, however, that the trial court correctly
concluded that Naifeh’s rescission notice did not have the
automatic effect of rescinding the transaction (that is,
without respondent’s acquiescence or a court approving
the rescission), and nothing in Jesinoski suggests
otherwise. On this point, the parties each rely on cases
that ostensibly support their respective positions.

Appellants argue, and several cases remark, that
rescission is automatic upon the consumer’s notice under
the procedure set forth in section 1635(b), (See, ¢.g.,
Merritt, supra, 759 F.3d at p. 1030 (under the procedure
set forth in section 1635(b), “all that the consumier need
do is notify the creditor of his intent to rescind,” and theU.S. Bank National Assn. v. Naifeh, 1 Cal.App.Sth 767 (2016)
205 Cal.Rptr.3d 120, 16 Cal. Daily Op. Serv. 7747, 2016 Daily Journal DAR. 7340

“agreement is then automatically rescinded”); Sherzer v.
Homestar Mortg. Servs. (3d Cir, 2013) 707 F.3d 255, 258
[“rescission occurs automatically when the obligor validly
exercises his right to rescind,” as opposed to having to file
a lawsuit}; Williams y. Homestake Morigage Co. (11th
Cir, 1992) 968 F.2d 1137, 1140 [agreement
“automatically rescinded” when consumer notifies the
creditor of his intent to rescind]; see Lippner v. Deutsche
Bank Nat'l Trust Co. (N.D. Ill. 2008) $44 F.Supp.2d 695,
702 [where creditor *783 conceded it had violated the
TILA and the consumer had timely exercised her right to
rescind, the creditor was obligated under section 1635 to
honor the rescission demand, and the failure to do so was
a further TILA violation].) And the Court stated in
Jesinoski, supra, 135 S.Ct. at p. 792, “rescission is
effected when the borrower notifies the creditor of his
intention to rescind.”

On the other hand, respondent points us to Yamamoto,
supra, 329 F.3d 1167, on which the trial court relied. In
Yamamoto, the borrowers sent the lender a notice of
rescission and then sued, seeking damages and rescission.
The district court ruled that the borrowers had to tender
the loan proceeds; when they were unable to do so, the
court dismissed their lawsuit. Noting that section 1635(b)
expressly permits a court to modify the procedures set
forth in that section, the Ninth Circuit Court of Appeals
held that the trial judge had the discretion to “condition”
rescission on the borrower's tender. If the lender had
acquiesced, the transaction would have been rescinded
automatically; but because the lender contested the
rescission notice and. produced evidence about the
sufficiency of the disclosures, it “cannot be that the
security interest vanishes immediately upon the giving of
notice.” (Yamamoto, supra, 329 F.3d at p. 1172.) The
court explained: “Otherwise, a borrower could get out
from under a secured loan simply by claiming TILA
violations, whether or not the lender had actually
committed any. Rather, under the statute and the
regulation, the security interest ‘becomes void’ only when
the consumer ‘rescinds’ the transaction. In a contested
case, this happens when the right to rescind is determined
in the borrower’s favor.” (fhid.)

Yamamoto continued: “Thus, a court may impose
conditions on rescission that **132 assure that the
borrower meets her obligations once the creditor has
performed its obligations. Our precedent is consistent
with the statutory and regulatory regime of leaving courts
free to exercise equitable discretion to modify rescission
procedures. This also comports with congressional intent
that ‘the courts, at any time during the rescission process,
may impose equitable conditions to insure that the
consumer mects his obligations after the *784 creditor has

performed his obligations as required by the act.’ S.Rep.
No. 368, 96th Cong., 2d Sess. 29 (1980), reprinted in
1980 U.S.C.C.A.N, 236, 265.” (Yamamoto, supra, 329
F.3d at p. 1173.8

Yamamoto is readily harmonized with the cases finding
automatic rescission. A timely notice of rescission
automatically renders the security interest void under
section 1635(b), where the creditor acquiesces in the
rescission or ignores it. However, once the creditor
contests the notice of rescission, the court may alter the
procedure otherwise dictated by the TILA, determine
whether there were inadequate disclosures that would
extend the rescission period to three years, and decide
whether equity compels a requirement that the borrower
tender the loan proceeds before the lender retums the
amounts paid and releases its security interest. This
accomplishes the legislative goals of protecting the
borrower from nondisclosures, motivating the lender to
respond to the borrower’s concerns, and returning the
parties to the status quo ante in a manner consistent with
the facts and equities of the particular situation.

Indeed, even those federal appellate cases on which
appellants rely for the proposition that rescission is
“automatic” expressly recognize the authority of courts to
condition the voiding of the security interest for ‘equitable
reasons. (E.g., Merritt, supra, 789 F.3d at pp. 1030--1032;
Sherzer vy. Homestar Mortg. Servs., supra, 707 F.3d at p.
260 [“if either the obligor or the creditor sues after the
obligor sends notice of rescission, the court has the
discretion to modify the order in which the obligor and
creditor are required to exchange property or disclaim
security interests”]; Williams y. Homestake Mortgage Co.,
supra, 968 F.2d at pp. 1141-1142 [to effect a “realistic
recognition of the full scope of the statutory scheme,” “we
hold that a court may impose conditions that run with the
voiding of a creditor’s security interest upon terms that
would be equitable and just to the parties in view of all
#*133 surrounding circumstances,” including
“conditioning the voiding of [the lender’s] security
interest”].)

Moreover, *785 the plain language of the statute compels
the conclusion that a court is empowered to facilitate
equity in implementing a rescission under the TILA.
Section 1635(b) provides that “[t]he procedures
prescribed by this subsection shall apply except when
otherwise ordered by. a court.” (Italics added.) Those
procedures include the voiding of the security interest, the
termination of the obligor’s liability, and the process for
restoring the parties to the status quo. The unequivocal
expression of legislative intent is that the court may
modify any or all of these matters to assure that theU.S. Bank National Assn. v. Naifeh, 1 Cal.App.5th 767 (2016)

205 Cal.Rptr.3d 120. 16 Cal. Daily Op. Serv. 7747, 2016 Daily Joumal D.A.R. 7340

rescissionary remedy is imposed equitably in a given
case,

5. Implications for this Case

"lin light of Jesinoski, appellants urge that Naifeh’s notice
of rescission divested BofA of its security interest in the
Property, renders the foreclosure sale void, and deprived
respondent of standing to pursue its claims for
cancellation of instruments.

But those conclusions are premature. Appellants raised
the rescission issue as an affirmative defense in this case.
They therefore placed at issue whether there was, in fact,
a timely rescission, which requires proof that the
disclosures required by the TILA were not provided, so as
to extend the rescission period to three years. That issue
has not yet been decided by the trial court.

If the TILA disclosures were not deficient, Naifeh’s
resci