When Two Loans From The Same Lender Are Secured by Two Deeds of Trust On A Single Property, Assignee Of Junior Loan May Seek Money Judgment From Borrower After Trustee’s Sale On Senior Loan

In Cadlerock Joint Venture L.P. v. Lobel (— Cal.Rptr.3d —-, Cal.App. 4 Dist., June 21, 2012), a California Court of Appeal considered whether Code of Civil Procedure Section 580d prohibited the assignee of a junior lien on a property from seeking a money judgment when the assignee of a senior lien had already conducted a nonjudicial foreclosure sale of the property.  The court ruled that although Section 580d precludes a deficiency judgment by the junior lienholder when the same lender is both the senior and junior lienholder, it does not preclude such a judgment when both loans are subsequently assigned to different entities soon after loan origination.


In 2004, William Lobel purchased a parcel of real estate in Newport Beach.  In 2006, Lobel entered into two loans with Sea-Breeze Financial Services (“Sea-Breeze”): a $740,000 loan on October 5, with a first deed of trust on the Property (“Senior Lien”); and a $138,750 lien on October 6 with a second deed of trust (“Junior Lien”).  Within a few weeks, the Senior Lien was assigned to Central Mortgage Company (“Central Mortgage”) and the Junior Lien to Cadlerock Joint Venture L.P. (“Cadlerock”).

By 2008, Lobel had defaulted on both loans.  Central Mortgage conducted a nonjudicial foreclosure sale on April 23, 2008, that recovered no surplus funds beyond the amount of the Senior Lien.  Cadlerock filed suit against Lobel to seek recovery of the outstanding balance of the Junior Lien. The trial court granted summary judgment to Lobel ruling that Section 580d barred Cadlerock’s action.  Cadlerock appealed.


The court offered an abridged version of the language of Section 580d.  By its plain terms, the court said, Section 580d bans actions by a lender seeking a “deficiency upon a note secured by a deed of trust . . . upon real property . . . in any case in which the real property . . . has been sold by the . . . trustee under power of sale contained in the . . . deed of trust.”  The court explained that the purpose of that language is to limit a creditor to a single action for the recovery of a debt.

According to the court, that language is easy to apply to a single creditor with a single promissory note secured by a single deed of trust, but it is not specific about how it applies to a junior lienor when the foreclosure has been conducted by an entirely separate senior lienor with a separate deed of trust.  The California Supreme Court, in prior case law, has stated that while Section 580d “does not appear to extend to a junior lienor whose security has been sold out in a senior sale,” Section 580d does preclude a deficiency judgment by a junior lienor when the same lender is both the senior and the junior lienor.

Relevant here, the court said, is that the assignments were made soon after the loans were originated and were made to different entities.  Although the loans both originated with one lender, the loan originator and various assignees of the senior and junior liens were independent entities who were not acting in concert to skirt Section 580’s prohibition.

Therefore, the court found that the trial court erred when ruling that it barred Cadlerock’s action.  The judgment was reversed and the trial court was directed to vacate its summary judgment for Lobel and enter new orders granting it to Cadlerock.


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