Compliance Bulletin

Court Case an Object Lesson for Mortgage Lenders
June 15, 2015

A recent California court decision is a reminder for mortgage lenders (and their title insurers) to keep an eye out for would-be borrowers who hold something less than a fee simple interest in real property pledged as security. In Peterson v. Wells Fargo Bank, the borrower had acquired rights to her home through a will that granted her only a right to live in the property rent free “for her lifetime.” Upon her death the property passes to the decedent’s children. The borrower later, without authority, recorded a grant deed in her own favor with no listed limitations, and proceeded to encumber the property in the course of obtaining a loan. After she died and the loan went into default, the bank initiated foreclosure proceedings. The decedent’s children filed suit and successfully invalidated the bank’s deed of trust and notice of default, leaving the lender unsecured. See CBA’s Regulatory Compliance Bulletin for more information.