Court Rules Third Party Cannot Collect on Junior Lien After Foreclosure
First Tuesday, a great online journal regarding real estate law in California, has noted an important case relating to foreclosures and real estate lawsuits in California. A California Appeals Court has held that an assignee of a second trust deed is not entitled to recover the remaining principal balance on the junior lien since the recovery is barred by California anti-deficiency protection provided to borrowers whose senior lien is sold at a non-judicial foreclosure, regardless of whether the senior lien was sold to a third party and the junior lien was assigned after the foreclosure sale.
A lender provided purchase-assist financing to a borrower secured by a first and second trust deed. The borrower defaulted and the lender initiated non-judicial foreclosure, selling the first trust deed to a third party at a trustee’s sale, wiping-out the second trust deed. The lender later assigned its rights to the second trust deed to an assignee. The assignee attempted to recover the remaining principal balance on the second trust deed from the borrower.
Claim: The assignee claimed it was entitled to recover on the junior lien since it was not the original holder of the senior lien and held the junior lien as an assignee, and was thus exempt from anti-deficiency statutes.
Counterclaim: The borrower claimed the assignee was barred from collecting the principal balance on the second trust deed since he was protected under California anti-deficiency statutes barring a deficiency judgment from being collected following a non-judicial foreclosure sale.
Most people know that In California, if you owe money secured with a purchase money mortgage or deed of trust (e.g. the money was used to purchase the dwelling) the holder of the Deed of Trust or Mortgage is prohibited from seeking to collect on the note any sums more than it recovers from foreclosure even if the sums from foreclosure are less than the amount due on the note.
In California, as in most states, a creditor’s right to enforce a debt secured by a mortgage or deed of trust on real property is restricted by statute. Under
California law, the creditor must rely upon his security before enforcing the debt. Code Civ. Proc., §§ 580a, 725a, 726. If the security is insufficient, his right to a judgment against the debtor for the deficiency may be limited or barred. Code Civ. Proc., § 580d, prohibits a creditor from seeking a judgment for a deficiency on all notes secured by a deed of trust or mortgage upon real property in any case in which the real property has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust. The effect of § 580d is that the beneficiary of a deed of trust executed after 1939 cannot hold the debtor for a deficiency unless he uses the remedy of judicial
This does not hold true for home equity lines of credit and the like that are used not to improve the dwelling but to purchase things other than the dwelling. Those sums can be recovered. Here the the importance of the ruling is that just because the assignee was not the original holder of the senior lien and held the junior lien as an assignee it was entitled to recover on it. No dice said the court.
Real estate litigation in foreclosure cases can be complicated and is often a losing proposition for the homeowner. If you believe you have a legitimate dispute contact us for a free consultation. Los Angeles Real Estate Lawyers handle lawsuits, disputes and negotiations arising out of loans, seller carry back loans, foreclosure and broker negligence or malpractice.
Worried about a lawsuit or dispute arising out of the purchase,sale,or investment in property or other issues such as contracts between business partners or broker fraud? Call us for a free consultation. Beverly Hills Business Attorney Galen Gentry can help minimize lawsuit exposure and effectively litigate disputes when you have been wronged. With 21 years of experience and the highest rating for legal skills and ethical conduct from avvo.com and martindale.com,Galen can work with you to avoid costly legal problems through proper planning. Call 800 486 6814 for a free,no obligation consultation. Serving clients in Southern California including Los Angeles,Beverly Hills,Santa Monica,Hollywood,The San Fernando Valley,Glendale,Pasadena,Ventura County,Orange County and Long Beach.