FOR THE NORTHERN DISTRICT OF CALIFORNIA
JUDITH FAYE MIRANDA, No. 1-90-01184
JUDITH FAYE MIRANDA,
v. A.P. No. 1-90-0247
REDWOOD EMPIRE MORTGAGE CO.,
Memorandum of Decision
Debtor Judith Miranda and her nondebtor husband, Frank, were married in 1972. After
many years of financial problems, Frank established as successful construction business in the
mid-1980's. By the time Judith and Frank separated in May of 1989, the business was doing
very well. The business, as well as all other property of Judith and Frank, was community
Judith and Frank reconciled briefly over the Thanksgiving weekend of 1989. At that time,
Frank was in the process of obtaining two loans ostensibly to develop a property on First Street
in Sonoma, California. Judith was aware of the loan applications, and was cooperating with
Frank notwithstanding their separation. One of the loans, for $400,000.00, was to be secured
only by a first deed of trust on the property to be developed. The other loan, for $110,000.00,
was to be secured by second deeds of trust to both the developed property and the Miranda
residence where Judith lived.
Immediately after Thanksgiving, Judith was informed by Frank's bank that Frank had been
withdrawing very large amounts of cash. When Judith confronted Frank with this knowledge,
their brief attempt at reconciliation collapsed.
Just at this time, the loans were due to close. The broker for the loans was defendant
Redwood Empire Mortgage Company (REMCO), which also acted as escrow holder. The
actual lenders were defendants Frye and Gerstein.
An employee of REMCO, Eleanor Bernice Ober, was charged with notarizing the deeds of
trust even though she was to get a commission out of the escrow. Ober agreed to leave the
deeds of trust and her notary book in the Miranda mailbox, where Frank intercepted them and
forged Judith's name. When Frank returned them to Ober the next day, she falsely notarized
the deeds of trust.
The escrow instructions required the loan proceeds to be paid to both Frank and Judith. One
of the loan checks was made payable to Frank's business only, without any justification. In the
other escrow, the escrow officer prepared a document for both Frank and Judith to sign
directing the funds be paid to Frank's business. REMCO negligently released the funds to
Frank when only he, and not Judith, signed the document.
Frank has since literally "gone south" with approximately $1 million in community cash,
including the proceeds of the escrows closed by using the forged deeds of trust. When Judith
informed REMCO that the deeds of trust had been forged and that Frank was not legitimately
intending to develop the property, REMCO successfully stopped payment on several checks.
However, approximately $176,000.00 was disbursed, of which Frank got $114,000.00. An
additional $23,000.00 went to REMCO in loan fees.
Of the $400,000.00 loan proceeds, REMCO stopped payment on all but $66,000.00.
However, in order to stop interest from accruing it was necessary to return these funds to the
borrower and amend the note. REMCO told Judith that she needed to sign a loan modification
agreement; she complied.
In state court dissolution proceedings, Frank showed up just long enough to enter into an
agreement with Judith whereby he would keep all the cash he had spirited out of the country
and Judith would take all of their real property. During negotiations, it was clearly understood
that she was to take the property only subject to valid liens. The agreement was recited in open
court, with Judith's state court attorney noting and Frank's attorney agreeing that Judith was
taking only subject to "real" debt. No formal judgment has ever been signed, as the version
drafted by Frank's lawyer did not specifically exclude the debt secured by the forged
REMCO does not contest that the deeds of trust were forged, or that it violated escrow
instructions by disbursing the loan proceeds to Frank alone. Instead, it alleges that Judith knew
about the loans, and would have agreed to what was done with the proceeds had she been asked,
so that she should be deemed to have ratified the forgeries. Moreover, it argues that she waived
her right to complain by signing the modification agreement and by agreeing to assume the real
property debt in the state court proceedings.
It is clear that Judith knew the loans were about to fund, and it is possible that she would
have agreed to turn the proceeds over to Frank, although this is doubtful in light of recently
learning that Frank was secreting community funds out of the country. However, the clearest
evidence that Judith ratified the forgery of her name would have been if she had agreed to let
Frank all of the proceeds. REMCO itself forestalled such evidence by negligently turning all
proceeds over to Frank alone without requiring Judith's written consent, even though its own
escrow officer had prepared such a consent. The remaining evidence fails to establish any
intent of Judith to ratify the forgery of her name.
Judith's signing of the modification agreement was not a ratification of the forgeries.
REMCO told her that she needed to sign it or interest on $400,000.00 would continue to accrue.
She had no way of knowing that she would be able to establish the fact of forgery. Mitigation
of losses does not amount to ratification.
Even if REMCO is somehow a beneficiary of the agreement made between Judith and
Frank, even though it has never been reduced to writing, the testimony is clear that Judith never
agreed to take any real property subject to invalid liens. Since the property in question was
community property, and since the court finds no ratification, the Frye and Gerstein deeds of
trust are void as to the entire property. Droeger
v. Friedman, Sloan & Ross
, 54 Cal.3d 26,
36-37 (1991). The court finds no liability for failure to disburse according to a schedule or
violation of lending regulations because the loans were made for business purposes. The court
reserves the issue of attorneys' fees for further motions.
The court's ruling renders the marshalling argument of cross-complainant Bacheller largely
moot. To the extent not moot, the court finds no equitable basis for the marshalling he urges.
The cross-complaint shall be dismissed with prejudice.
For the foregoing reasons, judgment shall be entered in favor of Judith declaring the Frye
and Gerstein deeds of trust void. If Judith believes she is entitled to attorneys' fees, she shall
immediately file a motion supported by authorities as to whether there is any such right and,
if there is, who must pay. If she decides there is no entitlement to attorneys' fees, she shall
submit an appropriate form of judgment forthwith.
The clerk of the court shall send a copy of this decision and a tape of the testimony of
Eleanor Bernice Ober to the California Secretary of State.
This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a)
and FRBP 7052.
Dated: November 12, 1991 _______________________