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Have you or someone you know had an interest in real property on which there was a cloud on title—perhaps a competing claim of ownership or other rights to the property? Do you know of someone who bought real property only to learn that the property had been subject to a title dispute in the past? This article will explain the remedy of “Quiet Title” to resolve title disputes, and it will explain what happens to any subsequent purchaser’s rights – particularly in those instances when the Quiet Title judgement is reversed or set aside. The interesting case study included at the end of the article, if you chose to read it also, is a cautionary tale for those individuals caught up in quiet title situations.

What is a “quiet title” action?

A quiet title action allows individuals or entities to clear a cloud on title to real property, typically arising in property disputes involving competing claims to rightful ownership of real property. However, quiet title actions are not merely a tool to clear clouds on title to a property or to establish the rightful owner. They can also serve as a mechanism for litigating a variety of disputes, including disputes to resolve discrepancies or errors in deeds, to challenge or establish easements, to resolve boundary disagreements, and to address surveying errors.

In California, quiet title lawsuits are subject to the Quiet Title Act (Code Civ. Proc., § 760.010), enacted in 1980. To bring forth an action under the Quiet Title Act, a litigant must file a complaint seeking relief under the Quiet Title Act (signed under penalty of perjury), usually in the county where the real property is located. The litigant must also record a Notice of Pendency of Action (also known as a “lis pendens”) with the county recorder’s office alerting potential buyers to the dispute implicating the real property. (See our prior article “Understanding the power of lis pendens” where the “lis pendens” is discussed in detail.)

There are generally two types of quiet title actions—“in personam” (a Latin term that literally translates to “against the person”) and “in rem” (a Latin term meaning “against a thing”)—the latter of which is more immune to subsequent attacks. An in personam quiet title judgment is a decree that is binding only against the parties named in the quiet title proceeding. An in rem decree, on the other hand, can be binding not only against the parties to the quiet title proceeding but also against anyone else who may attempt to assert title later on.

California’s Quiet Title Act creates the procedural mechanism for seeking and obtaining in rem decrees “resolving adverse claims to property that would be binding even to nonparties and hence be ‘good against all the world.’” (Tsasu LLC v. U.S. Bank Tr., N.A., 62 Cal. App. 5th 704, 715-16 (2021)). By following these more stringent requirements under the Quiet Title Act, these in rem decrees are “more resilient to subsequent challenges to the interest litigated in that action.” (Id.) That is to say, even if someone later successfully challenges the judgment quieting title, those that acquired an interest in the subject property in reliance on the judgment do not lose their interest.

Indeed, Section 764.060 of the Quiet Title Act specifically provides that: “The relief granted in an action or proceeding directly or collaterally attacking the judgment in the action, whether based on lack of actual notice to a party or otherwise, shall not impair the rights of a purchaser or encumbrancer for value of the property acting in reliance on the judgment without knowledge of any defects or irregularities in the judgment or the proceedings.” (emphasis added.)

What does Section 764.060 of the Quiet Title Act mean for subsequent purchasers and/or lenders that later secure loans against the subject property?

Prior to the enactment of section 764.060 of the Quiet Title Act, under common law, a party acquiring an interest in property after a quiet title judgment was rendered could be required to forfeit that interest if the judgment is later challenged. This was true even if the subsequent interest was acquired without knowledge of any defects in the judgment.

For example, if a lender later provided a mortgage to a subsequent owner who purchased the property, but the prior quiet title judgment was voided after the acquisition, the lender would lose the security interest held in the property even if the lender had no notice of defects in the quiet title judgment. Likewise, the buyer of the property would forfeit the interest in the property purchased (even if they otherwise retained a right to seek return of their downpayment, etc.). The Quiet Title Act not only codified the requirements for quieting title between parties involved in a quiet title action, but Section 764.060 of the Quiet Title Act specifically rectified this problem by preserving the interests of parties and entities who subsequently obtained such interest in the property in good faith in reliance on the quiet title judgment that did not involve them.

Under section 764.060 of the Quiet Title Act, the onus is no longer on subsequent purchaser and lenders to investigate and keep abreast of possible defects in the quiet title judgment that fall outside of a reasonable initial inquiry, thereby increasing the marketability of real property that may be subject to quiet title actions.

How do you obtain a quiet title judgment under the Quiet Title Act?

The Quiet Title Act’s requirements for obtaining a quiet title judgment are stricter than the requirements for obtaining judgments resolving adverse claims to property under other causes of action. The plaintiff must: (1) file a verified complaint that names, as defendants: (a) all persons having adverse claims to the plaintiff’s title, including persons whose claims are of record, known to the plaintiffs, or are reasonably apparent from an inspection of the property and (b) all persons unknown claiming any legal or equitable right, title, estate, lien, or interest in the property described in the complaint adverse to plaintiff’s title, or any cloud upon plaintiff’s title; (2) record a lis pendens regarding the pendency of the quiet title action in the county recorder’s office where the property is located; and (3) establish entitlement to a quiet title judgment with evidence of the plaintiff’s title.[1]

What is the binding effect of a quiet title judgment on those persons who had an interest in the property at issue at the time the judgment was issued?

If the person seeking to challenge the quiet title judgment was a party to the quiet title action, the judgment is permanent and binding on them (subject to any appeal rights). (CCP § 764.030(a).) However, the judgment is not binding for those who were not a party to the quiet title action if: (1) at the time the lis pendens was filed—or, if none was filed, at the time the quiet title judgment was recorded—the person had a claim that is shown on the title records but was nevertheless omitted from the action (Id. §§ 764.045(a) & 764.030(b)) and/or (2) the claim was actually known to the plaintiff or would have been reasonably apparent from an inspection of the property. (Id. § 764.045(b).)

What are the rights of those persons who did not have an interest in the property at the time of the quiet title judgment but who relied on the judgment to later acquire an interest in the property?

Those who did not have a claim to the property at the time of the quiet title judgment but relied on the quiet title judgment to subsequently acquire rights in the property (including lenders who secure loans against the property) are entitled to retaining those rights even if the judgment is later voided. (Id. § 764.060.) This is true as long as the individual or entity was a “purchaser or encumbrancer for value” and had no actual or constructive “knowledge of any defects or irregularities in the quiet title judgment or proceedings.” (Id.)

What constitutes actual or constructive knowledge for those who acquire title in reliance on a prior quiet title judgment?

As seen in the interesting case study included below, Ridec LLC v. Hinkle, 92 Cal. App. 5th 1182 (2023), a person or entity has constructive knowledge of a defect in the quiet title judgment if they had “knowledge of circumstances which, upon reasonable inquiry, would lead to that particular fact” or “the fact is contained in a properly recorded document.” (Id. at 1204.) A person or entity has constructive knowledge of title defects through recorded documents only if those documents have been properly indexed in the chain of title for the property at issue. (Id.) If the properly recorded document refers to further recorded documents, the person has constructive knowledge of what a reasonable inquiry into those further documents would reveal.

As Ridec explains, the Quiet Title Act does not impute a duty to conduct independent investigation into other applicable legal actions. (Id. 1204-1205.) Likewise, the Quiet Title Act does not impute a duty to investigate otherwise validly filed court documents accepted by the court such as proofs of service or withdrawn lis pendens even if such documents are forgeries. (Id.) Finally, there is no requirement to first inspect the property. (Id.)

What to do if you are in need of quieting title in a property dispute or are confronted with such an action now or from the past?

If you find yourself involved with a real estate issue in which there is or had been a dispute over title, this article provides some useful information to understand the situation you face. But, as always, litigants should consult qualified legal counsel about any particular situation when considering initiating a quiet title action or when in need of defending such a lawsuit. At Scali Rasmussen, we have attorneys with expertise in all areas of real property law.

Case study

A look into Ridec v. Hinkle and the protection it affords to lenders.

The recent case of Ridec LLC v. Hinkle, 92 Cal. App. 5th 1182 (2023) is demonstrative of how quiet title actions work in California. In this case, a California Court of Appeal reversed a lower court ruling that voided a lender’s deed of trust securing a loan against property obtained in reliance on a void quiet title judgment where the lender had no knowledge of defects with the title. That is, the lender retained its security interest in the subject property even where the interests of the original owner—that of an elderly woman defrauded out of title to her property—were restored when the quiet title judgment was set aside.

A factual dive in the litigation arising from fraud and deception:

As explained in Ridec v. Hinkle, property owner Ocie Payne Hinkle was an 89-year-old woman who had begun a relationship with Roi Wilson. (Id. at 1188.) In the fall of 2010, while hospitalized and medicated, “Wilson prevailed upon Ocie to grant him power of attorney over her affairs.” (Id.) Wilson then used this power of attorney to deed away Ocie’s property, one of which was deeded over to Edmound Daire—a “professional ‘document preparer.’” (Id.) When Ocie’s adult son discovered what had happened, he placed his mother in a conservatorship and Daire signed a grant deed giving the property back to Ocie. (Id. at 1189.) Ocie passed away a few years later, leaving her adult son as her sole heir to the property. (Id.)

Despite having deeded the property back to Ocie before her passing, Daire filed a quiet title action in which he named only Ocie and Wilson (the person who had previously deeded him the property) as well as “All Persons Unknown” claiming an interest in the property. (Id.) Daire also recorded a lis pendens regarding his pending quiet title lawsuit. (Id.) According to the proof of service that Daire later filed with the court, he claimed his process server personally served Ocie with the complaint—nearly a year after Ocie had already passed away. (Id. at 1191.) Daire then sought and obtained a default judgment against Ocie for quiet title, declaring Daire to be the lawful owner of the property. (Id. at 1189.) The court also ordered the expungement of the grant deed by which Daire had returned the property to Ocie. (Id.)

A few months after the quiet title judgment was recorded, Daire applied for two loans—one for $650,000 from Ridec LLC (“Ridec”) and one for $400,000 from PSG Capital Partners, Inc. (“PSG”). (Id. at 1190-91.) He secured the two loans with the property by way of deeds of trust. (Id.) In making the loan to Daire, Ridec had the title insurer run a title report on the property that revealed the deed history (including the deeds to and from Daire) and the recently recorded quiet title judgment obtained by Daire. (Id. at 1190.) The title insurer recommended that Ridec wait until the appeal period for the quiet title judgment had run before recording its deed of trust and wiring loan funds to Daire, which it did. (Id.)

Ocie’s son and heir, who was still living at the property when the loans were made, later learned of the fraud and filed “a motion to vacate the quiet title judgment on the ground that neither Ocie nor her estate were ever served in the quiet title action.” (Id. at 1191.) The court granted the motion and set aside the quiet title judgment obtained by Daire. (Id.) In so doing, the court voided Daire’s title and reestablished Ocie’s original interest in the property (which would then go to her son by way of inheritance).

Further litigation then ensued, which included the two lenders and Daire seeking to protect their respective claims on the property. The litigation cases consolidated into the action that ultimately resulted in the aforementioned appeal by Ridec. In the litigation, the trial court invalidated Ridec’s deed of trust despite the fact that Ridec acted in good faith without knowledge of any of the defects in the quiet title judgment. (Id. at 1193.) The trial court based its ruling on, among other reasons, public policy favoring the application of the old common law rule that would have invalidated a later lender’s rights, rather than the Quiet Title Act, and the unconstitutionality of the Quiet Title Act as applied to Ridec. (Id. at 1193-94.)

The trial court’s ruling explained:

First, the trial court held that “public policy” necessitated the use of the common law rule rather than Section 764.060 in determining Ridec’s rights. (Id. at 1194.) Under the generous common law rule, any rights in a property derived from a void judgment are invalid—including those of lenders—regardless of whether or not the party acquiring the subsequent interest had knowledge of the defect in the judgment. As the trial court reasoned, lenders are better positioned to take on the risks and absorb losses than the original owners of the property. (Id.)

Second, the trial court held that even if Section 764.060 applied, Ridec was not a bona fide encumbrancer as required under Section 764.060 because it had constructive and/or actual knowledge of facts it chose to ignore prior to making the loan. (Id.) The court pointed to a variety of “examples of Ridec’s knowledge,” either actual or constructive knowledge, including that: (1) Ridec had knowledge of the information included on the title report; (2) Ridec knew about Ocie’s conservatorship but failed to investigate the details; (3) Ridec did not inspect the property in person; and (4) Ridec did not investigate the validity of the proof of service of the complaint. (Id. at 1194-95.)

Finally, the trial court also took issue with the constitutionality of Section 764.060, noting that it was both in violation of due process and equal protection rights. (Id. at 1194, 1202.) Specially, the court ruled that the statute violated the constitution because “(1) due process mandates that a judgment obtained without notice to the property owner is void and has no effect and (2) having different rules for whether rights in property made in reliance on a judgment that is later vacated as void, depending on whether that judgment is a quiet title judgment, is irrational and thereby violates substantive due process and denies equal protection of the law.” (Id. at 1202.)

Defects in the Court’s reasoning justified the reinstatement of Ridec’s security interest in the property:

On appeal, the California Court of Appeals reversed the trial court, emphasizing that (1) Section 764.060 of the Quiet Title Act and Tsasu LLC v. U.S. Bank Tr., N.A., 62 Cal. App. 5th 704 (2021) govern the case; (2) public policy did not warrant applying the common law rule; and (3) there was no actual or constructive knowledge of the defect on the part of Ridec. (Id. at 1199-1205.) The Court of Appeals rebuked the trial court for overriding the Legislature by disregarding the applicable law in favor of the court’s own public policy rationale, explaining that the Legislature specifically intended to strike a “balance of equities that favors the encumbrancer, at least as to quiet title judgments that comply with the [Quiet Title] Act’s more stringent requirements and when the encumbrancer acts without knowledge of any defects in the judgment.” (Id. at 1203.) The Court concluded its review of the constitutionality of the statue by stating: “Because this reassessment of the balance rationally furthers our Legislature's goal of increasing the marketability of title, it is sufficiently rational to withstand constitutional scrutiny.” (Id. at 1203.)

The Court also held that Ridec acquired its rights in the property after the quiet title judgment and relied on that judgment in acquiring title and that Ridec had no actual or constructive knowledge of the quiet title judgment’s defects. (Id. at 1203-1204.) Therefore, the trial court could not invalidate Ridec’s deed of trust. (Id.)

In rejecting actual knowledge on the part of Ridec, the Court noted that the recorded documents did not reveal any defects to Ridec and there is no requirement to independently verify the validity of a judgment. (Id. at 1204.) Further, the Court found Ridec was not under an obligation to investigate the details of the conservatorship nor required to conduct a physical inspection of the property or investigate an otherwise valid proof of service approved by the trial court. (Id. at 1204-1205.)

The appellate court’s ruling in this recent case further solidified the protections the Quiet Title Act affords to lenders and other persons and entities who acquire an interest in property in good faith even after a quiet title judgment has been rendered with respect to that property and who do so without knowledge of any defects in the judgment.

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[1] Note that, in cases where the defendants default, “courts are split as to whether establishing entitlement to a quiet title judgment requires an evidentiary hearing at which a defaulted defendant may participate or merely a prove-up hearing at which a higher quantum of evidence must be produced.” (Ridec LLC v. Hinkle, 92 Cal. App. 5th 1182, 1196 (2023).)