TFLG Appeal Cited With Distinction By The California Real Property Journal

TFLG recently made news again in California real estate law when a published case TFLG handled was honored by California Real Property Journal as one of 2012's "ten most significant cases that impact the practice of real estate law in California." The California Real Property Journal is the official publication of The State Bar of California's Real Property Law Section, it has been described as "the flagship of State Bar publications," and it is one of California's leading real estate law periodicals. TFLG's case appears in Volume 31, No. 1, 2013 in pages 8-9. In the fifth case selected by The State Bar of California for 2012, Harbour Vista, LLC v. HSBC Mortgage Services Inc. (Dec. 19, 2011) 201 Cal.App.4th 1496, the court of appeal addressed the question of whether, and to what extent, a defaulted defendant in a quiet title action should be afforded the right to participate in the prove-up hearing required by statute.

The Case

The purpose of a quiet title case is to settle all disputes over who truly owns a particular piece of property or an interest in that property.

In this case, the plaintiff, Harbour Vista, brought an action to quiet title to a condominium in Huntington Beach, California. It named HSBC as one of many defendants. When HSBC did not respond to Harbour Vista's quiet title complaint within the time allowed after service (30 days), Harbour Vista requested that the trial court clerk enter HSBC's "default." The court clerk duly entered HSBC's default in the trial court's records.

When HSBC found out the trial court had entered the default, it asked the trial court for an opportunity to assert its own claim of ownership of the condominium. Although such a request after a default is typically granted as a matter of course, the trial court refused. Hours later, the trial court received Harbour Vista's "prove-up" package — its evidence supporting its claim of title — and without any evidentiary hearing entered judgment that Harbour Vista was the one true owner of the condominium.

The Appeal

TFLG recommended appealing the trial court's judgment on the basis of a statute, the express language of which appeared to conflict with the trial court's actions. California Code of Civil Procedure Section 764.010 says that in all quiet title actions, "The court shall not enter judgment by default, but shall in all cases require evidence of plaintiff's title and hear such evidence as may be offered respecting the claims of any of the defendants...." To TFLG, the trial court had done something it was not permitted to do: it entered a quiet title judgment, by default, without holding a hearing regarding the evidence of title being offered by the parties.

TFLG briefed and argued before the Court of Appeal that the trial court violated the law by entering a default judgment against HSBC without hearing HSBC's evidence. The Court of Appeal agreed and reversed the judgment.

The Ruling

Writing for the majority, Justice Bedsworth held, "The statutory language is about as straightforward as such language ever gets: 'The court shall not enter judgment by default... .' Entry of a default judgment against appellant HSBC Mortgage Services Inc., and in favor of respondent Harbour Vista, LLC, in a quiet title action was error." Furthermore, he ordered the trial court to "hold an evidentiary hearing in open court on the question of Harbour Vista's and HSBC's claims to title to the condominium and to render judgment in accordance to the evidence and the law."

Going Forward

According to the California Real Property Journal's commentary, the court's ruling seems to "effectively preclude the use of declarations to support a default judgment in a quiet title action." Rather, the ruling suggests that the statute requires an evidentiary hearing, presumably including live testimony, cross-examination of witnesses, and objections to evidence.

Nonetheless, it is our opinion at TFLG that, because the legal effect of a recorded transfer of title is subject to judicial notice under Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 265, the courts are required to acknowledge the effect of such transfers without the use of declarations or live testimony. In other words, the ruling in Harbour Vista should not affect quiet title actions based solely on duly recorded transfers in which all parties have been defaulted. In such cases, no live testimony, cross-examination or objections to evidence should be necessary or even relevant in evaluating the owner's duly perfected, recorded claim to clear title.