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December 29, 2021

California Court Finds for Defendant Bank in Adverse Possession Dispute

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The California Court of Appeals, Fifth Appellate Division, recently found for defendant Citibank, N.A. ("Citibank") in a dispute over the ownership of property in an unincorporated area of southern California. See Bailey v. Citibank, N.A., 66 Cal. App. 5th 335 (2021). Plaintiffs Charles and Kimberley Bailey took possession of property in Frazier Park, California (the "Property") in 2013, and claimed to be rightful owners based on their alleged adverse possession thereof for a five-year period. Before that period was completed, though, Citibank became successor in interest of a deed of trust which had been recorded in 2005, and foreclosed and acquired title to the property under the trustee's deed in 2018. When plaintiffs subsequently filed their complaint to quiet title, Citibank was named as the primary defendant. Citibank, however, failed to answer or otherwise respond to the complaint, and its default was entered. The trial court subsequently conducted an evidentiary hearing on plaintiffs' quiet title claim and concluded that title to the property was vested in plaintiffs, not Citibank. Citibank did not appear at the evidentiary hearing. Following the hearing, the trial court entered a judgment quieting title in plaintiffs' favor. Thereafter, Citibank moved to set aside both the default and the judgment under the mandatory provisions of Code of Civil Procedure section 473, based on Citibank's attorney's affidavit of fault. The trial court granted Citibank's motion, and the default and the judgment quieting title were set aside. Plaintiffs appealed from that order on the ground that no basis existed for potential relief under section 473 since Citibank's attorney was not retained to handle this case until after the default was entered. In response to plaintiffs' appeal, Citibank filed a protective cross-appeal, arguing that even if relief under section 473 was unavailable, the judgment quieting title in plaintiffs' favor was erroneous as a matter of law and should be reversed.

The court initially disagreed with Citibank, finding that the trial court's application of section 473 was improper, as it should have only applied if the default was the fault of an attorney. In this case, Citibank had not even assigned an attorney at the time of default, and thus it could not have been the fault of the attorney. However, the court found that the trial court misapplied the doctrine of adverse possession, and thus Citibank always had claim to the Property throughout the dispute. First, the court found that under the doctrine, plaintiffs' possession of the Property was not adverse or hostile to Citibank's rights until Citibank took fee title under the trustee's deed in 2018, just before the complaint was filed, and far short of the five year period required for possession to be adverse. Next, the court found that plaintiffs were attempting to claim title greater than that which was claimed on the 2005 deed of trust, and that even if plaintiffs were to be granted title, it would be subject to the 2005 deed of trust. Third, with Citibank only gaining possessory interest in the property in 2018, the court rejected plaintiffs' argument that Citibank had possessory interest previously, finding that the 2005 deed of trust merely gave the lender a right to sue or defend litigation, and did not convey a possessory interest against which adverse possession could be asserted. Finally, the court determined that public policy reasons asserted by plaintiffs for promoting adverse possession did not apply, as Citibank's lesser ownership stake in the property until 2018 meant that it was not the sort of absent owner that the theory of adverse possession protected against.

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