Agreement under which plaintiff’s trust deed was subordinated to a new trust deed securing a note was not breached when new trust deed secured that note plus two other notes

Agreement under which plaintiff’s trust deed was subordinated to a new  trust deed securing a note in the amount of $4,006,600 was not breached when defendant’s new trust deed secured that note plus two other notes for  a total of $21 million, since plaintiff’s trust deed was subordinate only  to the $4,006,600 loan. When agreement to cross-default loans was between defendants and their borrower, plaintiff could have protected its interest by tendering the amount necessary to cure the default under the $4,006,600  note alone.

In a junior lien holder’s action for declaratory relief, the trial court ruled that the senior lien holder’s assignor had failed to comply with the terms of a subordination agreement. As part of a refinancing transaction, the junior lien holder agreed to subordinate its existing trust deed to a new trust deed in favor of the senior lien holder’s assignor securing a note in a specified amount. The new trust deed secured that note and two other notes for a significantly larger total amount. The notes contained a cross-default provision stating that a default on one would be a default on all. The trustee recorded a notice of default advising the owner that the subordinated note was in default and that the amount necessary to cure the default was the total amount owed under all of the notes. The default was not cured, and the trustee sold the property. (Superior Court of San Luis Obispo County, No. CV090732, Dodie A. Harmon, Judge.)

The Court of Appeal reversed, holding that securing additional loans had not breached the subordination agreement because the notes secured by the trust deed were separate loans. The junior lien holder’s trust deed was subordinate only to the specified note. Its right to protect its interest by curing the default solely under that note was not affected by either the cross-default provision or the notice of default (Civ.

Code, § 2924c, subd. (b)(1)), which made clear that the total amount of the owner’s default included multiple loans.


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