On December 18, 2014, in Lin v. Coronado, the California Court of Appeal for the Second District rejected a claim to quiet title to property finding that only material alterations (those that change the legal effect of an instrument) render a deed void and ineffective (232 Cal. App. 4th 696 (2014)).

The plaintiff, Helen Lin pooled a $150,000 cashier's check with $100,000 provided by two independent limited liability companies (LLCs), River Forest Financial LLC and Elevation Investments LLC, to jointly purchase property at a foreclosure auction. Their bid was successful and Cal-Western Reconveyance Corporation, the trustee for the property, prepared a trustee's deed that conveyed the property "to RIVER FOREST FINANCIAL LLC 75%, ELEVATION INVESTMENTS 25% HELEN LIN."

The deed that was ultimately executed and recorded was altered to omit Lin's name and read "to RIVER FOREST FINANCIAL LLC 75%, ELEVATION INVESTMENTS 25% (herein called Grantee)."

River Forest then executed and recorded a quitclaim deed to the property in favor of Elevation. Elevation sold the property to a bona fide purchaser, Mireya Coronado. Lin received no portion of the proceeds from the sale and then brought an action to quiet title against Coronado.

Lin argued that the removal of her name from the deed before it was recorded rendered the deed void and unable to provide good title, even to a bona fide purchaser. Lin further argued that the 75/25% split reflected on the deed was only meant to apply to River Forest Financial's and Elevation Investment's percentage ownership of the property. Coronado filed a demurrer and motion to strike. The trial court sustained the demurrer and dismissed the claim. Lin appealed.

The Court of Appeal affirmed the trial court's holding and found that Lin could not state a cause of action to quiet title because the alleged alteration was, as a matter of law, not material. The court confirmed the modern rule that material alterations (those that change the legal effect of the instrument) made without the grantor's knowledge or consent may render a deed void as to subsequent bona fide purchasers.

The court held that the alteration of the deed did not change the legal effect of the instrument. The original deed granted a 75% ownership interest in the property to River Forest and a 25% ownership interest in the property to Elevation. While Lin was identified, she was not granted any percentage interest in the property. Therefore the alteration that omitted her name entirely from the recorded deed had no legal effect, and Lin could not quiet title to the property.

California counsel should carefully review all deeds and recordable instruments to ensure their accuracy before recordation. Particularly when clients purchase property through a foreclosure sale, counsel should closely examine the trustee's deed for errors.

Counsel should also advise their clients as to the importance of properly documenting their business relationships with co-investors. Had Lin formed an LLC, along with River Forest and Elevation, to purchase the foreclosed property, she would have had a clearer claim to her share of the sale proceeds.