Well, just when I thought I’d seen everything…

A Riverside, California homeowner, Denise Saluto, who was in foreclosure filed for quiet title against Deutsche Bank National Trust, as trustee for Long Beach Mortgage, and its successors and/or assigns, and Washington Mutual Bank, successor in interest to Long Beach Mortgage Company… and won by default.  (And Washington Mutual, turned into JPMorgan Chase.)

That’s right… neither Deutsche Bank nor JPMorgan Chase responded to the lawsuit.

When this happens, the Plaintiff still has to present his or her case, but it’s unopposed so it’s not exactly the highest of hurdles.  After considering the evidence presented by the Plaintiff, the court entered judgment in favor of Plaintiff and against the Defendants, thereby voiding her Trustee Sale and the Deed of Trust.  So, presto-change-o… no more mortgage… as in… it’s a free and clear house!  Ms. Saluto may still owe the debt, but the mortgage company is now like Visa or Mastercard, insecure because they’re unsecured.  And no one wants to be unsecured, especially in bankruptcy court.

Now, some will say that Deutsche Bank/JPMorgan Chase didn’t respond because they just forgot or whatever, but I don’t know whether that’s the case or not.  In fact, when their lawyer tried using this excuse, the judge was quick to point out that the file had been with the lawyer for NINE MONTHS before any efforts were made to get the default judgment set aside.

When a party loses by default like that, assuming it was an oversight of some kind, they usually appeal the decision as soon as they’re notified of the judgment by coming back into court to ask the judge to set aside the default judgment, claiming they weren’t properly served or something like that.  And depending on the reason they defaulted, and almost certainly in the case of a bank and a foreclosure, the judge will set aside the default judgment and let the case start over. 

As a matter of fact, if it’s within six months of the default, and the lawyer takes the blame, the court MUST vacate the default judgment.  It’s actually the only time you ever get to see a lawyer willingly accept blame for anything.

So, in this case, as one would think, Deutsche Bank did appeal the decision, but the thing is, they waited almost a year to do so, in legalese… the bank, “failed to establish diligence in bringing their motion for relief.”

“On February 5, 2009, Saluto filed a complaint against JPMorgan Chase Bank and Deutsche Bank to set aside a trustee sale for violations of title 15 of the United States Code section 1601 et seq. and 12 Code of Federal Regulations part 226.1 et seq., to cancel the trustee deed upon sale, and for quiet title.

Defendants failed to respond to the complaint, and on March 16, 2009, Saluto served a request for entry of default on defendants.  The next day, Saluto filed the proofs of service and the request for default with the trial court. The trial court entered default on each defendant on March 17, 2009.” An entry of default just means that the defendant cannot file a response.  The Plaintiff still must file a “default judgment package,” which contains evidence supporting their claims.

In July 2009, Saluto filed a request for entry of default judgment, and on December 15, 2009, default judgments were entered.

Then… a year went by before…

“On June 15, 2010, defendants filed a motion to set aside the defaults and default judgments under section 473, subdivision (b), which allows relief from an action taken against a party through mistake, inadvertence, surprise, or excusable neglect when the motion for relief is made “within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken.”

To support the motion, defendants filed the declarations of their attorney, Jenny L. Merris; a vice-president of Deutsche Bank, Ronaldo Reyes; and a research analyst of JPMorgan Chase Bank, Harold Galo. The declarations stated that defendants had no record of receiving service and were not aware of the lawsuit until March 2010.”

So, on October 28, 2010, Judge Mark E. Johnson heard the banks’ motion.

At the hearing, Judge Johnson stated:

“I’m going to deny the motion. I do believe that I am outside of the six-month limit. . . . I also don’t see the due diligence. So if you want to re-bring it under [section] 473.5, I will look at that, but at least as to this ground I have before me, [section] 473 subdivision (b), I’m denying the motion.

On December 3, 2010, defendants filed a motion to set aside the defaults under section 473.5. Defendants submitted new declarations of Reyes, Galo, and Merris in support of the motion.”

Deutsche Bank claimed the bank had “no actual knowledge of this action until in or around early April 2010 when JPMorgan Chase Bank’s counsel informed it that Plaintiff had recorded the Default Court Judgment against this property.”  Deutsche Bank’s declaration claimed, “This was the first time that Deutsche Bank became aware of the existence of this action.”

JPMorgan Chase claimed that it “had no actual knowledge of this action until on or around March 2010 when JPMorgan was informed that Plaintiff was seeking to refinance the property . . . and that Plaintiff had recorded the Default Court Judgment against this property.”

This time, Commissioner Barkley granted the motion brought by the banks thereby vacating the default judgment the Plaintiff had obtained about a year earlier. Saluto then appealed the decision to California’s Court of Appeals, Fourth District, Division Two, contending that the defendants’ motion under section 473.5 was, in essence, a motion for reconsideration, and defendants failed to comply with the procedural requirements of section 1008. (Don’t worry about section 1008 for a moment.)  Saluto also argued that Commissioner Barkley simply got it wrong, and that the default judgment should have been upheld.

Now, this gets kind of technical, but Section 473.5 says that when service of a summons fails to result in actual notice to a defendant in time to defend the action… and therefore a default or default judgment is entered… the defendant may serve and file a notice of motion to set aside the default or default judgment and for leave to defend the action.

Section 473.5 says that the notice of motion has to be served and filed within a reasonable time, but not exceeding the earlier of two years after entry if a default judgment, or 180 days after service of a written notice that the default or default judgment has been entered.

Basically, because JPMorgan Chase Bank said it discovered the default in March 2010 and Deutsche Bank said it discovered the default in early April 2010, but they didn’t file their motion under section 473.5 until December 2010, the appeals court found no evidence that the two banks acted “diligently” in bringing their motion for relief under section 473.5, and therefore the trial court should not have granted the motion that set aside the default judgment.

As far as complying with the procedural requirements of section 1008, mentioned above, the court said the following…

“Because we have found reversible error based on defendants‟ failure to establish diligence in bringing their motion for relief, Saluto’s additional contentions are moot.”

So, that’s that for Denise Saluto… she won, quieted her title and now she has no mortgage on her home.  She may still owe the money to some entity, but the debt is unsecured… like credit card debt… whatever she owes it’s no longer tied to her home.

Pretty amazing, right?  If you would have asked me last week, I would have said there’s absolutely no chance that filing for quiet title will result in your loan being unsecured.  And I would have been entirely wrong because Denise Saluto just did it.

And again… did it happen because Deutsche Bank and JPMorgan Chase somehow let this slip through the cracks?  Maybe.  Or, was it that the banks weren’t prepared to defend the quiet title action… as in, they couldn’t find the note, or the assignment was a forged and fraudulent mess.

Honestly, I have no idea what happened here, and I don’t think anyone else can know for sure either.  All we can know is what happened.

So, what could happen next?

I started thinking about what could happen from here for Denise Saluto.  Would she simply walk away with her free and clear home and that would be it?  Or, would the banks have another move on the chessboard that would reverse the decision and cost Denise her home?

I called around to various lawyers and other experts, asking if the banks could somehow get the decision reversed?  The answer: No.  The decision by the Court of Appeal is essentially final.  Sure, the California Supreme Court could overturn a decision by this court, but I’m told that the chances of that happening are so remote that it’s not worth considering.

So, there are no legal maneuvers that will change what’s happened, but I can’t believe that the bankers are just going to give up and go home on this either.  Maybe they will, but maybe they won’t, right?  So, what else could happen next to threaten the title to Denise’s home?

Ooops, we forgot… we sold it to someone else?

I’m not saying this is going to happen, but it occurred to me that a “new owner” of Denise’s note could show up on the scene with paperwork showing they bought it from the prior owner, either Deutsche Bank or JPMorgan Chase, before all this transpired.

You know, like a surprise owner that just happens to have appropriately dated paperwork showing that they are the owners of Denise’s loan and therefore the quiet title doesn’t apply… she’s behind on her payments, and therefore they are moving to foreclose.

Would this be fraud?  I would certainly think so.  Would that stop the bankers from doing it?  I would certainly think not.  And would it work and cause Denise to lose her home?

The lawyers, however, all tell me the answer is no.  None of that would happen… it simply wouldn’t work.

So, Denise Saluto does now own her home free and clear.  However, it seems very likely that she still owes the amount of her mortgage as an unsecured debt.  Lawyers have told me that she could potentially have the debt discharged in a Chapter 7 bankruptcy, but it would depend on a few things lining up just right, including the value of her home being less than the homestead exemption.

In general, a judgment creditor cannot force the sale of your home unless your home can be sold for an amount that would satisfy all superior liens PLUS the amount of your homestead exemption.  It looks to me like equity of up to $75,000 is exempt if you’re under 65 years of age, and $150,000 if over 65, and if you’re married it’s higher still.

But, as with everything having to do with the law, there are plenty of caveats, limitations and nuances.  I found many of them in the California Code of Civil Procedure Section 704.730, but as always, check with an attorney before assuming anything because my experience has been that just because it says one thing doesn’t mean that it doesn’t mean another.

Okay, so what does this mean to me?

Well, in my opinion… that’s an interesting question.

For one thing, filing quiet title did work out well for Denise Saluto, and since I would never have predicted it happening in her case, I’m certainly not going to tell you it won’t happen again in yours, because as I said earlier… I don’t know why it happened.  It might have slipped through cracks, or might have been caused by other factors.

Ever since yesterday when I started reading the decision by the California Court of Appeal, I’ve been trying to come up with a reason not to file one myself.

The lawyers I spoke with all told me that you have to have legitimate doubt about who holds title to your home, or else you’d be filing fraudulently, but I don’t see that as being a problem for me or anyone else in this country whose been paying attention to the news these last few years.

I mean, since I do know that Mickey Mouse has been signing the Assignment of the Deed of Trust in most cases, and Donald Duck has been notarizing it, and since the President of the United States recently told the country that there have been thousands of fraudulent foreclosures, and with countless lawsuits alleging that Mortgage-backed securities are in fact, less filling, as opposed to tasting great… let’s just say that I would not want to be asked under oath who owns my note.

As far as my having legitimate doubts as to the holder of title to my home, I could assure any court under oath that when it comes to my hizzle, my doubt is rizzle… it’s legit.  Word.

(That was me trying to be “hip,” but let’s not tell my daughter because she will be so embarrassed.)

This decision got me thinking about all sorts of possibilities, truth be told.  Like, what if many thousands of people all filed for quiet title around the same time… like maybe a million homeowners… LOL.  I would definitely have to go pay-per-view to see that shiznit go down.

If JPMorgan Chase and Deutsche were caught bo janglin in Denise’s case, I’d have to wager that many thousands of quiet title filings would leave them in a tizzle.  (Oops, I did it again.)

So, realizing that I wouldn’t be the only one thinking this way, I went online to see how many sites there were offering to teach homeowners how to file quiet title, or represent homeowners who want to file for quiet title… and not surprisingly, there were plenty of them… some want thousands of dollars for their services, and some want anywhere from many hundreds to a couple thousand dollars for a kit that claims to help you do it yourself.

And because, even though I think it’s a long shot, I don’t think it’s more of a long shot than winning the lottery or having a slot machine pay off, so I got together with some lawyers and other experts and am putting together a comprehensive guide to filing quiet title, which won’t cost more than $100, and will offer everything the more expensive versions have to offer, and probably even more.

Will it work?  I have no idea, and I’d have to guess that the answer will be no a lot more often than it’ll be yes.  But, if you’ve decided to try it, at least this way you won’t have to spend a lot of money doing so.  For a hundred bucks, you can spin the wheel and if it doesn’t work… oh well.  And if it does… well, then… Woohoo!

(Look for the new site in the next few days at www.filequiettitle.com and www.quiettitlecalifornia.com)

If you want more information on the Mandelman Guide to Filing Quiet Title, email me at mandelman@mac.com and I’ll send you an email response with more details.  The guide will be packed with easy to understand insight and instructions, tricks and tips, rules and limitations, and even sample templates to make it easy to file your own complaint with the court.

It will help you do it right… do it cheap… and do it safely.  And I’ll be consulting with lawyers in each state, so I’ll have the specifics for your state included, if applicable.

I’m not saying you should do it… and after Denise Saluto’s outcome, I’m sure as heck not saying you shouldn’t.  All I am saying is that I’m going to make sure that you don’t need to spend a bunch of money trying it.  And it shouldn’t become the primary strategy to keep your home, because no one knows why it worked in the Saluto case… or whether it will work for you.

But, it does prove one thing fo’ shizzle… when it comes to the foreclosure crisis, no one knows what will happen tomorrow, because the only thing that’s consistent about this mess is its glaring and scandalous inconsistencies.

Mandelman out.