227 Cal. App. 4th 665
Cal. Ct. App.2014Background
- Wellesley owned the Los Angeles Property and held a first deed of trust; a junior mechanic’s lien by Decon existed.
- Wellesley defaulted on the loan secured by the trust deed, and the trustee pursued foreclosure.
- Wellesley conveyed title to PMCF by deed in lieu of foreclosure, with a provision that the loan documents would not merge and would remain liens.
- PMCF foreclosed and purchased the Property at the foreclosure sale, later selling to a third party (12304 Santa Monica).
- Decon’s mechanic’s lien remained outstanding and was asserted against the Property; Decon challenged the foreclosure as having eliminated the lien.
- Trial court ruled that Decon’s lien was not extinguished; the court entered judgment in Decon’s favor; appellants appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether deed in lieu merges senior lien when junior liens exist | Decon argues merger eliminates senior lien | PMCF argues no merger occurs with junior liens | No merger; foreclosure valid and eliminates junior lien(s) |
| Whether PMCF’s deed in lieu and foreclose eliminated Decon’s lien | Decon asserts lien survived foreclosure | PMCF contends lien is extinguished by foreclosure after no-merger | Foreclosure eliminated Decon’s lien; PMCF acquired title free of the lien |
| Effect of no-merger rule on junior lienholders | N/A (not favorable to junior liens) | N/A | No prejudice to junior lienholders; they may bid at foreclosure and recover if value exceeds debt |
Key Cases Cited
- Davis v. Randall, 117 Cal. 12 (Cal. 1897) (merger depends on intent; intervening liens prevent automatic merger)
- Hines v. Ward, 121 Cal. 115 (Cal. 1898) (no merger when it is in grantee’s interest to preserve mortgage title)
- Sheldon v. La Brea Materials Co., 216 Cal. 686 (Cal. 1932) (applies merger rule to deeds of trust; no merger when necessary to protect grantee’s rights)
- Anglo-Californian Bank v. Field, 146 Cal. 644 (Cal. 1905) (general merger rule; exceptions preserve lien interests with interceding liens)
- Miscione v. Barton Development Co., 52 Cal.App.4th 1320 (Cal.App. 1997) (foreclosure effect on junior liens; lien elimination upon senior foreclosure)