California court rules that where surviving spouse only has life estate in property she could not mortgage it so mortgagor’s deed of trust was cancelled

In Peterson v. Wells Fargo Bank, N.A., 236 Cal. App. 4th 844, 186 Cal. Rptr. 3d 842 (May 8, 2015) a Probate Court had issued an order distributing the property to decedent’s surviving spouse, subject to certain conditions. It ordered that the spouse may reside in the Property rent free for her lifetime, but if she remarries she must sell the property and split the proceeds with decedent’s two sons. Spouse also had the option to sell the property at any time, again, with the proceeds to be shared among herself and the two sons. Upon her death, the Property was to pass to the two sons. In 2003, Spouse deeded the property to herself via a grant deed and later obtained a loan from Lender, secured by a recorded Deed of Trust. When she died, and payments on the mortgage loan ceased, the trustee recorded a Notice of Default. The sons sued to quiet title and cancel the grant deed, the Deed of Trust and the Notice of Default. The trial court found for the sons and the Lender appealed. The Appellate Court affirmed. It ruled that because the Probate Order granted Spouse the right to live in the property rent free for her lifetime and that the property would pass to the sons at her death, the Probate Order established in Spouse a life estate interest in the property. The sons obtained a fee interest as remaindermen. That Spouse was granted the right to sell the property or that the property had to be sold if she remarried did not convert her life estate interest into a fee interest. Therefore, she lacked the authority to encumber the property and the trial court correctly cancelled the Deed of Trust and the Notice of Default

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