Quiet Title Lawsuits and Statutes of Limitation

Real estate litigation attorneys in Los Angeles who deal with quiet title lawsuits will want to read a new California Court of Appeals case entitled Salazar v. Thomas (2015) 236 Cal.App.4th 467 (DAR 4889).  The issue in this opinion is whether a Notice of Default sent to the property owner “disturbed” their possession of the property so as to start the statute of limitations.

Facts:

Plaintiff Jaime Salazar was born in Mexico in 1945.  Both he and his wife have limited education and limited English proficiency.  In 1992 they purchased a commercial property in Bakersfield.  The rented out certain spaces and allowed their children to run businesses in the others.

In 2005 a deed of trust was recorded against the property securing a $350,000 loan.  While the note and deed of trust purport to be in the name of the Salazars, the plaintiffs allege that their signatures were forged and were not placed on the deed of trust at their direction.  Mr. Salazar believes that their son, Jamie Salazar, Jr. (Junior) forged their names on the documents.

On March 30, 2005 a Notice of Default and election to sell under deed of trust was recorded and mailed to plaintiffs.  Plaintiffs’ daughter called Junior, who said he would take care of it.  The daughter did not tell the plaintiffs about the Notice.

Additional notices of default were received and the daughter then spoke to the plaintiffs about them.  She started working with the lender and notified the lender that the signatures must have been forged.  When Junior disappeared in 2009, Mr. Salazar began to make payments on the loan.  He also entered into a forbearance agreement in which he was identified as the borrower and agreed to a payment schedule.  As a part of this agreement plaintiffs released all claims against the lender and acknowledged that the borrowers had been advised to take the agreement to an independent attorney and had been given the opportunity to do so.

Mr. Salazar then made payments in accordance with the forbearance agreement, including up to the time that the motion for summary judgment at issue in this appeal was heard.

Legal Proceedings In The Kern County Superior Court

On January 9, 2012 plaintiffs filed a verified complaint for quiet title, declaratory relief, relief on the ground of mistake, cancellation of deed of trust, and injunctive relief.  The complaint alleges plaintiffs’ signatures were forged.  The lenders filed an answer which included an affirmative defense that the action was barred by the statute of limitations.  The defendants brought a motion for summary judgment based on (1) a 3-year statute of limitations [section 338(d)], waiver, unclean hands, ratification and laches.

In July 2013 the trial court granted the motion for summary judgment.

Statute of Limitations in Quiet Title Lawsuits

The first issue in the motion for summary judgment was whether all of plaintiffs’ causes of action were barred by the three year statute of limitations in section 338(d).  The Court of Appeals summarized the law with regard to a statute of limitations in a quiet title lawsuit.

   1.  What Is The Statute Of Limitations In A Quiet Title Lawsuit?

The Legislature has not established a specific statute of limitations for actions to quiet title.  Therefore, courts refer to the underlying theory of relief to determine the applicable period of limitations.  An inquiry into the underlying theory requires the court to identify the nature of the cause of action.  The Court noted that generally the most likely time limits for a quiet title lawsuit are 5 years for adverse possession, 4 years for the cancellation of instrument and 3 years for claims based on fraud and mistake.

   2.  When Does The Statute of Limitations In A Quiet Title Lawsuit Begin To Run?

As a general rule, the statute of limitations for a quiet title lawsuit does not run against one in possession of the land.  The rationale for this special rule for quiet title lawsuits is “an unwillingness to convert a statute of limitations into a statute that works a forfeiture of property rights on the person holding the most obvious and important property right–namely, possession.”

However, this rule is not absolute.  The California Supreme Court explained that “It has long been the law that whether a statute of limitations bars an action to quiet title may turn on whether the plaintiff is in undisturbed possession of the land.”  The term undisturbed possession reflect the reference in an earlier case to “an owner in exclusive and undisputed possession.”

The California Supreme Court previously explained that

[N]o statute of limitations runs against a plaintiff seeking to quiet title while he is in possession of the property.  In many instances one in possession would not know of dormant adverse claims of persons not in possession.  Moreover, even if, as here, the party in possession knows of such a potential claimant, there is no reason to put him to the expense and inconvenience of litigation until such a claim is pressed against him.

A prior Supreme Court opinion expressed the same concept in different language:

An outstanding adverse claim, which amounts only to a cloud upon the title, is a continuing cause of action, and is not barred by lapse of time, until the hostile claim is asserted in some manner to jeopardize the superior title.  So long as the adverse claim lies dormant and inactive the owner of the superior title may not be incommoded by it and has the privilege of allowing it to stand indefinitely.  Each day’s assertion of such adverse claim gives a renewed cause of action to quiet title until such action is brought.

Thus, mere notice of an adverse claim is not enough to commence the owner’s statute of limitations.

    a.  Does a Notice of Default ‘Disturb’ The Owners’ Possession?

The issue in this case therefore centered around whether the fact that the lender sent a Notice of Default started the statute of limitations.  The Court of Appeals framed it in three other ways:  (1) When were plaintiffs no longer owners ‘in exclusive and undisputed possession’ of the land, (2) when was defendants’ adverse claim ‘pressed against plaintiffs’, or (3) when was defendants’ hostile claim ‘asserted in some manner to jeopardize the superior title’ held by plaintiffs.

   1.  Exclusive Possession and Tenants

The defendants argued that the statute of limitations began to run in 2005 because plaintiffs were not owners ‘in exclusive and undisputed possession’ because they rented out the property.  The Court dismissed this assertion, noting that “a landlord remains seised and possessed of leased property through his or her tenant as against third parties and/or the tenant.”

   2.  Disputed Possession–Notice of Default

Defendants also contend that possession became disputed after plaintiffs received the first Notice of Default.  The Court held that “delivery of the notices of default to plaintiffs would have informed them of an adverse claim or cloud on their title to the … property, which is not the same as disputing possession.  The notices of default simply stated that the borrowers were in default on their payment obligations and, if the default was not timely cured, their property may be sold.  The notices of default did not call into question the validity of plaintiffs’ control of the property by claiming plaintiffs’ possession was improper or illegal.”  moreover, the Court held that the notices of default presupposed that plaintiffs were the rightful owners of the property.  The Court therefore concluded that notices of default did not dispute plaintiffs’ possession of the property.

The Court therefore reversed the granting of the motion for summary judgment.  The case will go back to the trial court for further proceedings.

A real estate litigation attorney will always want to consider whether a statute of limitations defense is available in any real estate litigation.  However, chances are that a statute of limitations bar is not applicable in quiet title litigation except in very special circumstances.

Laine T. Wagenseller specializes in real estate litigation in Los Angeles and has handled a number of quiet title lawsuits in the Los Angeles Superior Court.  You can visit our website for more articles on quiet title and other real estate litigation issues.  Mr. Wagenseller can be contacted at (213) 286-0371.