[00:00:00] Speaker 04:
Thank you very much.

[00:00:01] Speaker 03:
Thank you.

[00:00:03] Speaker 03:
Madam Clerk, could you call the next case, please?

[00:00:07] Speaker 04:
In Ray Garcia, Miles L. Prince appearing for appellant, and Andrew Bysom appearing for appellee.

[00:00:17] Speaker 03:
All right.

[00:00:18] Speaker 03:
Council, would you like to reserve any time for reply?

[00:00:22] Speaker 01:
Yes, your honor.

[00:00:23] Speaker 01:
We'll reserve eight minutes for a response.

[00:00:27] Speaker 01:
Thank you.

[00:00:28] Speaker 01:
All right.

[00:00:28] Speaker 01:
You may proceed.

[00:00:30] Speaker 01:
Thank you, and may it please the court.

[00:00:33] Speaker 01:
I think this panel's decision is actually quite important on a very practical level for the day-to-day administration of non-judicial foreclosures in California.

[00:00:53] Speaker 01:
We are dealing with a civil code section that has not really reached this panel in a meaningful way.

[00:01:01] Speaker 01:
It's a fairly novel statute.

[00:01:05] Speaker 01:
And as such, I think it's important for this panel to

[00:01:10] Speaker 01:
really recall and focus on its purpose.

[00:01:14] Speaker 01:
And it was, as we present in our briefing, a part of a bundle of bills in the California legislature that was very specifically aimed at housing relief and housing reform and with the very specific stated goal of getting owner

[00:01:31] Speaker 01:
own Californians into homes quickly, efficiently, and without much legal process.

[00:01:40] Speaker 01:
And one goal, one element of those bundles of bills was this Civil Code Section 2924M, which elevates intended owner occupants above really almost everyone else in a non-judicial foreclosure to provide finality

[00:02:00] Speaker 01:
and to provide title immediately.

[00:02:04] Speaker 01:
And the few bankruptcy courts that have grappled with the statute have really underscored that purpose, that title vests immediately to the intended owner-occupant as soon as that sale becomes final.

[00:02:18] Speaker 03:
And I think what we have here- Isn't that, counsel, isn't that only if the winning bid is from a prospective owner-occupant?

[00:02:30] Speaker 01:
Yes, and I think though that the question this panel has now directly on that point is who gets to make that decision.

[00:02:39] Speaker 01:
Who gets to reviewable.

[00:02:41] Speaker 01:
And exactly is it reviewable and Mr Prince.

[00:02:47] Speaker 01:
Didn't quality have some discretion.

[00:02:50] Speaker 01:
I think Quality did, and the evidence shows that Quality in fact decided that this did qualify.

[00:02:57] Speaker 01:
When we look at the record, the only reason my client doesn't hold title to this property today is that far, far later in the process, for whatever reason, that still to this day, I cannot understand, Quality Loans freaked out over the annulment order.

[00:03:14] Speaker 01:
They had nothing to do with the fact that whether or not my client was a qualified bidder or was a qualified owner occupant, the quality loan just panicked that they weren't specifically mentioned in the annulment order.

[00:03:28] Speaker 01:
And the bankruptcy court is on the record at multiple hearings saying the bankruptcy court itself doesn't understand that, that the bankruptcy court crafted its annulment order specifically

[00:03:38] Speaker 01:
to annul the actions of quality in that foreclosure sale.

[00:03:44] Speaker 01:
But for whatever reason, that wasn't enough for quality.

[00:03:47] Speaker 01:
Does quality have discretion to review the affidavit?

[00:03:53] Speaker 01:
The Civil Code itself says that the foreclosure and trustee can rely on the affidavit and the declaration.

[00:04:01] Speaker 03:
And I think the evidence... Yeah, there's a different word than shall.

[00:04:06] Speaker 01:
Excuse me, I'm sorry, you broke up your own.

[00:04:12] Speaker 03:
Judge Corbett is asking whether there's discretion and you're citing a statute that says the trustee can rely on the affidavit.

[00:04:21] Speaker 03:
Doesn't that imply that it doesn't have to?

[00:04:24] Speaker 01:
Possibly, but in the situation like here where they do, I think the sale becomes final.

[00:04:30] Speaker 03:
Even if later it's determined that the bidder was not a prospective owner-occupant.

[00:04:38] Speaker 01:
Final means final.

[00:04:41] Speaker 02:
You say they did accept it.

[00:04:43] Speaker 02:
Well, they did receive it.

[00:04:46] Speaker 02:
If you could go a little more detail as why you think that they finally accepted it because they asked a lot of questions about it.

[00:04:54] Speaker 02:
Finally, I'm having a hard time seeing that they actually accepted it.

[00:05:00] Speaker 01:
I would point to 217 and 219.

[00:05:03] Speaker 01:
I want to know the facts here.

[00:05:06] Speaker 01:
What are the facts here?

[00:05:08] Speaker 02:
What did they do other than, you know?

[00:05:12] Speaker 02:
No question that they received it.

[00:05:15] Speaker 01:
Did they accept slash approve it?

[00:05:18] Speaker 01:
They did, because after they received it, as demonstrated in 217, 219, in the excerpts of record, they emailed our office and said, hey, by the way, we're preparing title, but the title is gonna go to your client in an individual capacity, not in his trust.

[00:05:35] Speaker 01:
And I think that that is demonstrative evidence that they not only received that affidavit, but they accepted it.

[00:05:40] Speaker 01:
And they began working on a title to vest in my client's own personal name, which would qualify under the statute.

[00:05:47] Speaker 01:
so that they began working on it.

[00:05:49] Speaker 02:
They said they were preparing it.

[00:05:51] Speaker 02:
They didn't say that they've prepared it.

[00:05:53] Speaker 02:
I mean, why couldn't they change their mind until they've actually prepared it and delivered it?

[00:06:00] Speaker 02:
You know, they were still reviewing it while they were preparing it, right?

[00:06:05] Speaker 02:
It's not prepared in past sentence, it's preparing.

[00:06:08] Speaker 01:
I think because

[00:06:13] Speaker 01:
As one of the few other bankruptcy courts that have grappled with this novel statute say, and that was the in race spikes, I believe, is that it becomes it's immediate.

[00:06:27] Speaker 01:
It's like a guillotine.

[00:06:28] Speaker 01:
that when that happens, the sale becomes final and title vests immediately.

[00:06:33] Speaker 01:
Whether or not the foreclosure and trustee has sort of dotted the I's and crossed the T's, the sale is final and title has already vested.

[00:06:45] Speaker 01:
You're saying, I'm sorry, go ahead Judge Breaker.

[00:06:49] Speaker 02:
Well, I think it gets back to what Judge Breaker was saying, is that they can, and so somewhere in the process,

[00:06:57] Speaker 02:
they could decide that they will cannot.

[00:07:01] Speaker 02:
And we have preparing and all this, but I don't see any place that they actually did it.

[00:07:07] Speaker 02:
If it was clearly an affidavit that didn't meet the statutory requirements, and they said we're reviewing it, or that we're thinking about preparing stuff, that's not enough until they actually accept it.

[00:07:27] Speaker 01:
I think that maybe more illustrative is that even after all that process, and this is maybe something that should have been underscored with, it was before the bankruptcy court and it's before this court, but maybe something that should have been highlighted is that even after all of this happened,

[00:07:48] Speaker 01:
Quality refunded the funds to my client personal.

[00:07:52] Speaker 01:
The check for the refund is made out to Steven Edward.

[00:07:55] Speaker 01:
It's not made out to CIC.

[00:07:57] Speaker 01:
It's not made out to the trust.

[00:07:59] Speaker 01:
It was the annulment for which quality decided it could not deliver the deed.

[00:08:05] Speaker 01:
It had nothing to do with my client's status as an intended owner occupant.

[00:08:09] Speaker 01:
That had already been determined.

[00:08:11] Speaker 01:
The bankruptcy court then comes in and says, no, no, the annulment issue is not an obstacle for Mr. Edward.

[00:08:18] Speaker 01:
It's the fact that in the bankruptcy court's view, he was never an intended owner-occupant.

[00:08:23] Speaker 01:
That wasn't the issue for the foreclosure and trustee.

[00:08:26] Speaker 01:
That was buttoned down for the foreclosure and trustee, and it remained buttoned down until the fact that they refunded the funds to him personally.

[00:08:35] Speaker 01:
And I've already gone past the time I reserved.

[00:08:40] Speaker 02:
Okay, he accepted the funds though, right?

[00:08:42] Speaker 02:
Did he cash it?

[00:08:46] Speaker 02:
I mean, he could have said, I'm not gonna take the funds back because I own the property.

[00:08:49] Speaker 02:
Did he do that?

[00:08:51] Speaker 01:
There were months of a tennis match of volleying those funds back and forth and I believe they're still in our trust account.

[00:09:01] Speaker 03:
Let's go ahead and let you reserve as much time as we have left.

[00:09:04] Speaker 03:
We'll hear from Mr. Bison.

[00:09:07] Speaker 00:
Good morning and may it please the court

[00:09:09] Speaker 00:
I believe the appellant kind of misstates the court's ruling on this matter.

[00:09:18] Speaker 00:
As it frames the argument, it states that the court held that Edward could not qualify as prospective owner-occupant merely because he used his trust or used the trust as a vehicle.

[00:09:38] Speaker 00:
But that's not what the court ruled.

[00:09:40] Speaker 00:
The court didn't state that you cannot use a trust and still qualify as an owner-occupant.

[00:09:46] Speaker 00:
What it said is that this trust did not qualify as an owner-occupant.

[00:09:50] Speaker 00:
And what it focused on was the fact that Edward was not the trustee.

[00:09:56] Speaker 00:
The trustee was some entity called CIC.

[00:10:00] Speaker 00:
CIC does not appear to be a natural person.

[00:10:06] Speaker 00:
A trust can be a vehicle.

[00:10:12] Speaker 00:
A person can use a trust as a vehicle and still qualify as an owner-occupant.

[00:10:19] Speaker 00:
An ordinary express trust is not an entity that's separate from its trustees.

[00:10:26] Speaker 00:
And a natural person

[00:10:28] Speaker 00:
who is both the trustee, the settler, and the beneficiary may qualify as a natural person for purposes of Section 2924M.

[00:10:42] Speaker 00:
But that's not what happened here.

[00:10:44] Speaker 00:
What we have here is Edward is not the trustee, and as a result, this trust cannot qualify to be a prospective owner-occupant.

[00:10:57] Speaker 00:
not only did the court make that determination, but so did Quality Loan.

[00:11:06] Speaker 00:
Quality Loan made the same determination, and as a result, it rescinded the sale and returned all of the funds to the

[00:11:20] Speaker 00:
to actually to CIC.

[00:11:23] Speaker 00:
I understand Mr. Prince says that the check was made out to Edwards personally, but in all of the emails between and all of the evidence, it shows that the check was to be made out to CIC.

[00:11:36] Speaker 00:
And I've never seen any evidence and it was never argued with

[00:11:44] Speaker 00:
in the bankruptcy court that the check was actually made out to Mr. Edward personally.

[00:11:49] Speaker 00:
And the reason for that was that CIC, that's who made out the check.

[00:11:57] Speaker 00:
The check was made from CIC and the check was returned to CIC.

[00:12:01] Speaker 00:
It may have gone through the Prince law firm, but it was made out to CIC and it's never been argued

[00:12:10] Speaker 00:
As to anything else until until today.

[00:12:15] Speaker 02:
So yes.

[00:12:18] Speaker 02:
I think I heard Mr Prince say he's in his rebuttal.

[00:12:22] Speaker 02:
He can clarify me if I've got it wrong.

[00:12:24] Speaker 02:
Is that quality did make the decision that?

[00:12:30] Speaker 02:
The purchaser did qualify under the statute.

[00:12:34] Speaker 02:
And I hear you say that quality never made that decision that they were reviewing it, that they were exercising their discretion.

[00:12:40] Speaker 02:
Could you please comment on that?

[00:12:43] Speaker 00:
Yes.

[00:12:46] Speaker 00:
It's clear from the email exchange.

[00:12:49] Speaker 00:
Quality accepted the affidavit as being timely, even though there was some dispute as to whether it was submitted timely, but the quality did accept it based upon Mr. Prince's representation that it was timely submitted.

[00:13:06] Speaker 00:
But it never said that, yes, we've reviewed the affidavit and we have made the determination that the trust is a prospective owner-occupant.

[00:13:18] Speaker 00:
On the contrary, after back and forth where they requested a copy of the trust to confirm that this was a testamentary trust, and after not receiving a copy, they then decided that, no, we cannot make a determination that the trust qualifies to be a natural person, and therefore, we are rescinding the sale.

[00:13:47] Speaker 00:
That's clear in the email exchange.

[00:13:50] Speaker 00:
And that's when they rescinded the sale and refunded the funds in a check made out to CIC.

[00:14:04] Speaker 00:
And if the trust then did not qualify,

[00:14:11] Speaker 00:
to be a natural person, then the sale could not have been completed.

[00:14:16] Speaker 00:
Because if a determination was made that the trust was not a natural person, then it could not qualify to be a prospective owner-occupant.

[00:14:27] Speaker 00:
And then quality would have had to take steps to comply with Section 2924, which it did not do.

[00:14:39] Speaker 00:
the quality would have been required to post on its website and provide certain information as to the general public, as to the amount of the highest sale, highest bid.

[00:14:59] Speaker 00:
And this was never done.

[00:15:00] Speaker 00:
And it never submitted

[00:15:07] Speaker 00:
provided a trustee.

[00:15:09] Speaker 00:
I mean, everything just kind of stopped.

[00:15:12] Speaker 00:
And to this day, the mortgage order is continuing to receive mortgage payments and is accepting those mortgage payments through the plan.

[00:15:29] Speaker 00:
So even if

[00:15:34] Speaker 00:
As long as the court finds, you know, as Judge Hull found that the trust did not qualify as an own occupant, then Quality Loan never went forward and did what it was required to do under 2924M in order to complete the sale.

[00:15:58] Speaker 00:
So that's where we are with that.

[00:16:00] Speaker 00:
Then, while Mr. Princeton raised these issues in his oral arguments, he did raise certain other issues in the brief pertaining to as to whether the court correctly ruled on the cross-complaint

[00:16:30] Speaker 00:
that Edward did not have any interest right or title to the property and said that it never had an opportunity to address that.

[00:16:45] Speaker 00:
But on the contrary, the complaint filed by Mr. Garcia, that's on the very first claim for relief.

[00:16:57] Speaker 00:
Mr. Garcia,

[00:16:58] Speaker 00:
As for judgment that that that he is the owner of record of the Coolidge Avenue property that Edwards Trust has no right title interest in or to the property.

[00:17:11] Speaker 00:
The trust's own cross complaint asked for quiet title and asked for the same same relief that that the trust is a is the rightful owner of the property so.

[00:17:23] Speaker 00:
To state that that it did not have an opportunity

[00:17:27] Speaker 00:
to argue that at the trial court on emotional summary judgment, it's just not correct.

[00:17:36] Speaker 00:
It also makes an argument regarding prior restraint.

[00:17:41] Speaker 00:
However, again, it never raised that issue.

[00:17:49] Speaker 00:
on the motion for summary judgment.

[00:17:52] Speaker 00:
It was never addressed in its pleadings, either in its opposition to the motion for summary judgment, and never argued at hearings.

[00:18:04] Speaker 00:
So those arguments cannot be brought up on appeal for the first time.

[00:18:11] Speaker 00:
And it waves the argument that the court's ruling is an exercise of prior restraint.

[00:18:19] Speaker 00:
But I think I've covered everything I have to say on the subject.

[00:18:30] Speaker 00:
I know the panel has reviewed all of the pleadings and all of the evidence and I will rest.

[00:18:41] Speaker 00:
Any other questions?

[00:18:44] Speaker 03:
Ms.

[00:18:44] Speaker 03:
Corbett?

[00:18:46] Speaker 03:
Thank you.

[00:18:48] Speaker 03:
All right, Mr. Prince, you have about six and a half minutes left.

[00:18:54] Speaker 01:
I'll reply.

[00:18:55] Speaker 01:
I want to address this issue that the trust is not.

[00:19:00] Speaker 01:
This trust is not an owner occupant because the trustee was purportedly to be this entity CIC.

[00:19:07] Speaker 01:
The only evidence of that is the receipt of funds issued at the actual auction, and I think it's important to remember that that those receipts issued at auctions are not legal instruments.

[00:19:20] Speaker 01:
They're not required under their law.

[00:19:22] Speaker 01:
They're not even really contemplated.

[00:19:24] Speaker 01:
under California's foreclosure statutory scheme.

[00:19:26] Speaker 01:
Those are really just creatures of practice because of the reality that oftentimes people show up with a certain amount of cashier's checks and you need to refund it.

[00:19:38] Speaker 01:
And the trustee wants to document that the difference between the bid and the cashier's checks accepted was issued.

[00:19:45] Speaker 05:
And so- But Mr. Prince,

[00:19:47] Speaker 05:
Didn't the affidavit actually seek to have title vested in the Steven Edward Trust as CIC as trustee?

[00:19:58] Speaker 05:
I mean, it's not just the receipt of funds.

[00:20:03] Speaker 05:
Mr. Edward in the affidavit requests that title be vested in the trust with CIC as trustee.

[00:20:11] Speaker 01:
Yes, and I think that's simply because that's how Mr. Edward was told his trust was set up.

[00:20:17] Speaker 01:
But the important point there, and I think it's important that you raise that, Your Honor, is that in response, that's when Quality said, okay, but we have to give it in your name personally.

[00:20:27] Speaker 01:
And I think that when Mr. Bissom raises the fact that there was then no overbid procedure,

[00:20:33] Speaker 01:
That's in fact further evidence that Quality Loan accepted that this was a qualified owner-occupant, because had they not, they would have proceeded with the overbid procedure.

[00:20:44] Speaker 01:
Because the whole point of this code section, 2924M, is that you don't need to do the overbid when you have a qualified intended owner-occupant.

[00:20:55] Speaker 01:
And the fact that Quality Loan did not proceed to overbid shows that they stopped the process there

[00:21:01] Speaker 01:
had they determined this is not a qualified owner-occupant, it would have been still a valid foreclosure.

[00:21:06] Speaker 01:
They would have just continued through the normal process and taken it to overbid.

[00:21:11] Speaker 01:
The fact that they stopped and they didn't do the overbid procedure means that when they got that declaration, they said, okay, we have a qualified owner-occupant.

[00:21:21] Speaker 01:
They're wrong that our owner occupant is wrong.

[00:21:24] Speaker 01:
We can't give him title as CIC with trustees.

[00:21:27] Speaker 01:
So that's why they sent that email and said, by the way, the deed you're going to be getting names you as the trustee or names you as the nominal title holder.

[00:21:35] Speaker 01:
And I just always, in this case, come back to that.

[00:21:40] Speaker 01:
The law can't be so easily defeated because for everything that stands true, the next day,

[00:21:50] Speaker 01:
after my client got that title, he could have transferred, quit claim deed it to CIC as trustee.

[00:22:00] Speaker 01:
I mean, it's so silly to suggest that who is holding title as trustee of this trust is so central that the quality law, that it invalidates the entire state.

[00:22:16] Speaker 02:
Mr. Prince though, aren't you ignoring history of the deed of trust law?

[00:22:20] Speaker 02:
In California and in the other states in the West, data trust law was created to provide a simplified method of foreclosure to reduce costs for everyone.

[00:22:31] Speaker 02:
But it wasn't designed to take away all the fairness or protection of equities and properties.

[00:22:37] Speaker 02:
And here, California legislature has provided a situation to sort of help homeowners and people that would occupy the property.

[00:22:47] Speaker 02:
The statute wasn't designed just to protect people buying at the foreclosure sale that are doing it for investment purposes.

[00:22:59] Speaker 02:
It created some protections to look at these things, and it looks like it gave quality some discretion to make these decisions.

[00:23:09] Speaker 01:
I don't think we don't necessarily take a position whether or not to what degree quality had discretion, but I think it's very clear in this particular case to what degree they chose to exercise that discretion.

[00:23:21] Speaker 01:
And I think it's very clear they exercise that discretion, determined that my client qualified so long as they issued title to him personally.

[00:23:29] Speaker 01:
And then they just got spooked with the annulment order.

[00:23:32] Speaker 01:
And so I don't think it's fair to my client that the bankruptcy court rewrites history itself and says, no, the real problem was with the identity of the purchaser.

[00:23:42] Speaker 01:
The annulment issue, which prevented my client from actually receiving title was fine, but actually quality should have never proceeded past the identity of the owner.

[00:23:52] Speaker 01:
And that's the real issue.

[00:23:54] Speaker 01:
I do want to with the remaining 90 seconds address these final 2 points in the appeal the prior restraint issue.

[00:24:02] Speaker 01:
I mean, it's quite shocking and the reason it was never addressed was because it totally blindsided us and it was not an issue on the summary judgment.

[00:24:10] Speaker 01:
I mean, to say that my client can't speak.

[00:24:12] Speaker 01:
to any of the tenants of this building?

[00:24:14] Speaker 01:
What if he canvases for a political campaign and knocks on their door?

[00:24:18] Speaker 01:
What if one of them ends up being his co-worker?

[00:24:21] Speaker 01:
I mean, there are reasons why prior restraints are so constitutionally impermissible, subject really extraordinary circumstances.

[00:24:31] Speaker 01:
And the fact that it was unaddressed, as Mr. Bissom notes, is that clearly those standards were not met here.

[00:24:38] Speaker 01:
They weren't even addressed.

[00:24:40] Speaker 01:
I certainly do not think that the bankruptcy court can restrain my client from even speaking to an occupant of the building.

[00:24:47] Speaker 01:
That is quite a drastic order.

[00:24:51] Speaker 01:
And finally, whether or not the relief sought by way of the cross complaint mirrors the relief sought of the complaint, it is undisputed.

[00:25:03] Speaker 01:
There was no motion for summary judgment on our cross complaint other than our own.

[00:25:08] Speaker 01:
Our motion was denied.

[00:25:09] Speaker 01:
their motion was granted, but their motion only sought judgment under the complaint.

[00:25:14] Speaker 01:
There was no motion for summary judgment in favor of the debtor on our cross-complaint.

[00:25:21] Speaker 01:
And I think under Ninth Circuit authority, that very clearly constitutes a sua sponte summary judgment that can't stand.

[00:25:31] Speaker 01:
And maybe the issues are resolved by some form of estoppel or issue preclusion.

[00:25:38] Speaker 01:
I don't know

[00:25:39] Speaker 01:
But I think that that is at least a day in court that my client is still entitled.

[00:25:47] Speaker 03:
Thank you very much.

[00:25:48] Speaker 03:
Any other questions for counsel?

[00:25:53] Speaker 03:
Thank you then.

[00:25:53] Speaker 03:
That will conclude our argument.

[00:25:55] Speaker 03:
We'll take the matter under submission, try to get out a decision as soon as possible.

[00:25:59] Speaker 03:
That concludes the case.

[00:26:01] Speaker 03:
Madam Clerk, I believe that concludes all matters for argument this morning.

[00:26:06] Speaker 04:
Yes, this session is in recess.

[00:26:09] Speaker 03:
Thank you.

[00:26:10] Speaker 04:
Thank you.