SMS Financial XXIII, LLC v. Cornerstone Tile Co.Annotate this Case
In 2004, U.S. Bank made a business loan to B2B, guaranteed by B2B’s principals, the Yousufs, and secured by a second deed of trust on the Yousufs's property. In 2011, U.S. Bank assigned the note and deed of trust to SMS. SMS, B2B and the Yousufs later executed a “Forbearance Agreement,” reciting that the loan was in default and agreeing that SMS would not exercise its rights as long as B2B made payments according to the agreement’s schedule. Months later, B2B failed to make the required payments. In 2014, SMS was preparing to initiate foreclosure when it learned that in 2007, without the knowledge of U.S. Bank, Cornerstone Title had, under Civil Code 2941(b)(3), recorded a release of the obligation secured by the deed of trust. SMS alleges that Cornerstone had no authority to do so, and that contrary to the release’s language, the secured obligation had not been satisfied or discharged. The court of appeal reversed dismissal of SMS’s suit against Cornerstone. Section 2941(b)(6) imposes broad liability on any title insurance company that issues and records a release under subdivision (b)(3). SMS, as the holder of an obligation, has the right to prove damages against Cornerstone, as a title company that recorded a release of that obligation. That SMS acquired the obligation from U.S. Bank is irrelevant.