Court Voids Deed of Bona Fide Purchaser Based on Fraud

In OC Interior Services, LLC v. Nationstar Mortgage, LLC, a California appellate court recently declined to enforce a deed based on fraud.  In OC Interior Services, Roger Hart purchased certain real property and obtained a loan to purchase it.  Without notice to his lender, he filed a complaint in court to cancel the loan claiming that he had paid the loan in full and legally rescinded the loan by providing notice of rescission to the lender.  The lender did not receive notice and failed to respond.  Hart obtained a default judgment to cancel the first deed of trust.  He then sold the property to plaintiff, OC Interior Services.  The lender discovered the fraud and attempted to foreclose on the property.  OC sued the lender claiming that it was a bona fide purchaser and that it had relied on the recorded default judgment showing the lender’s interest in the property had been vacated.  The defendant opposed.  The trial court rendered judgment in favor of the plaintiff.  The court of appeal reversed holding that a void default judgment was null and void for all purposes against a bona fide purchaser for value.  The court noted that a void judgment in the chain of title has the effect of nullifying a subsequent transfer, including a transfer to a purposed bona fide purchaser.  The court noted that there was evidence that OC suspected fraud before purchasing the property, because it asked the title insurer what would happen if the default judgment were appealed.  The Court held that even assuming that OC could be considered a bona fide purchaser, it took the property subject to a first deed of trust.

Shannon B. Jones, Partner sbj@sbj-law.com