SMS Financial XXIII, LLC v. Cornerstone

Court Allows Assignee of Deed of Trust to Sue the Title Company

for Improperly Releasing a Deed of Trust


In SMS Financial XXIII, LLC v. Cornerstorne Title Company, a California appellate court held that the assignee of a promissory note and deed of trust may assert an action against the title company for the improper release of a deed of trust.  In SMS Financial, U.S. Bank made a business loan secured by a deed of trust.  That note was assigned to plaintiff, SMS.  Three (3) years later, the borrower defaulted and SMS began foreclosure on the deed of trust.  It then discovered that U.S. Bank and the title company had improperly released the obligation on the deed of trust in 2007.  SMS sued the title company for damages arising from its preparation, execution and recordation of the release of the deed of trust.  The trial court sustained the title company’s demurrer without leave to amend finding that the assignment did not include an assignment of the tort claims against Cornerstone.  The court of appeals reversed deciding that by virtue of owning the deed of trust by assignment from U.S. Bank, SMS had its own claim against the title company regardless of any claims that U.S. Bank may be able to assert.  Therefore, the court allowed the lender to assert the claims against the title company. 


Shannon B. Jones, Partner