SMS Financial v. Cornerstone Title, 1DCA/2, 1/26/18
When a borrower pays off his mortgage, the lender (beneficiary) is supposed to reconvey the deed of trust (DOT). If the lender doesn’t do that, the title insurer can instead issue and record a release after a 75 day waiting period and after providing 10 days’ notice as required in Civil Code section 2941. The title insurer’s release is equivalent to a reconveyance of the DOT. However, the title insurance company that prepares or records a release under section 2941(b)(3) is “liable to any party for damages, including attorney’s fees, which any person may sustain by reason of the issuance and recording of the release.” Civil Code § 2941(b).
Here, Cornerstone Title recorded such a release of lender’s DOT even though the loan hadn’t been paid off. The lender didn’t know Cornerstone Title had released the DOT, and subsequently sold the DOT to a plaintiff, SMS Financial. SMS didn’t learn about the the Cornerstone release until the loan went into default and Cornerstone tried but was unable to foreclosure on the property subject to the DOT. SMS sued various parties including Cornerstone Title. The trial court granted Cornerstone Title’s demurrer without leave, holding that when it acquired the DOT the predecessor’s right to sue Cornerstone did not pass to SMS. Held: Reversed.
The assignment of an obligation carries with it an assignment of the rights incident to that obligation. Civil Code § 1084 says “The transfer of a thing transfers also all its incidents, unless expressly excepted . . . .” It is true that the assignment of a contract does not automatically vest in the assignee all rights and remedies related to the transaction. For example, if the accrued cause of action can be asserted by the assignor independent of ownership of the contract, and if the cause of action is not essential to continued enforcement of the contract, then the cause of action does not pass under the assignment as incidental to the contract unless the assignment specifically or impliedly designates the cause of action. In cases of secured mortgages, nothing could be more essential than the ability to enforce the DOT itself. In this case, the court therefore held that the rights assigned include the right to seek damages under Civil Code 2941(b)(6) from a title insurance company that had improperly released the DOT.