The California Court of Appeal recently held that a plaintiff cannot seek entry of default against a trustee that files a declaration of nonmonetary status pursuant to California Civil Code Section 2924l.
Section 2924l provides that a trustee can avoid liability for monetary awards related to nonjudicial foreclosure if it files a “declaration of nonmonetary status.” To be afforded the statute's protection, the declaration must state that the trustee ''reasonably believes it was named as a defendant solely in its capacity as trustee, and not for misconduct in its duties.'' If no party objects to this declaration in a timely manner, the trustee need not participate in the action and cannot be subject to monetary damages or attorneys' fees.
In Bae v. T.D. Service Co. of Arizona, the plaintiff sued the trustee, along with the mortgagor bank, for issuing a notice of foreclosure and ultimately foreclosing on his property without seeking relief from a bankruptcy stay. Early in the proceedings, the trustee filed an unopposed declaration pursuant to Section 2924l. More than 18 months after the action began, the lower court entered a default judgment against the trustee for $3 million when it failed to respond to an amended complaint.
The trustee moved to set aside the default judgment because, among other reasons, it was shielded from liability due to its nonmonetary status. The trial court agreed and set aside the default.
The California Court of Appeal affirmed, holding that the trustee's assertion of nonmonetary status was a complete defense to the underlying foreclosure action. In addition, the Court held that a nonmonetary trustee ''cannot be required to file an answer or other responsive pleading to the complaint in order to avoid a default and a default judgment awarding monetary damages.''
The case is good news for trustees who are often named in California foreclosure actions simply because they appear in the chain of title. Trustees can rest easy with the knowledge that an assertion of nonmonetary status early in a case may protect them against entry of default after they discontinue participation.
