Espinoza v. Bank of America, N.A.
2011 U.S. Dist. LEXIS 118820
S.D. Cal.2011Background
- Plaintiffs Gonzalo and Rosalba Espinoza purchased property in Bonita, CA, financed by multiple deeds of trust over time; by 2007 they were secured by DOT 3 with Washington Mutual and DOT 5 with Bank of America.
- A Notice of Default was filed in July 2009 initiating a nonjudicial foreclosure; a short sale was negotiated and approved by Chase (successor to WaMu) and Bank of America.
- Plaintiffs completed a short sale in March 2010; Bank of America issued a reconveyance (April 1, 2010) stating the debt remained outstanding and the lien was released only on the lien, not the debt.
- Plaintiffs transferred title to a new buyer; in November 2010 SRA Associates, for Bank of America, demanded $79,652.98 from Plaintiffs.
- Plaintiffs filed a FAC alleging three declaratory relief claims under California CCP § 580d, § 580e, and common-law antideficiency protection; BoA moved to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 580D precludes deficiency collection post-foreclosure | Espinoza asserts § 580d bars deficiency after nonjudicial foreclosure. | BoA contends there was no foreclosure sale, so § 580d does not apply. | 580D claim dismissed; no deficiency action after foreclosure occurred. |
| Whether § 580E retroactively applies to this pre-enactment short sale | 580e should bar post-short sale deficiency if retroactive. | 580e applies only to post-enactment short sales; not retroactive. | 580e does not apply retroactively; claim dismissed. |
| Whether common-law antideficiency rule (Hibernia) bars deficiency | Hibernia Rule prevents lenders from pursuing deficiency if security is extinguished without debtor’s knowledge. | Hibernia does not apply; statute-based protections control. | Hibernia Rule does not bar BoA; claim dismissed. |
Key Cases Cited
- Graves v. Bank of Am., 51 Cal.App.4th 607, 51 Cal.App.4th 607 (Cal. Ct. App. 1996) (one-action/security-first framework; anti-deficiency statute limits judgment after foreclosure)
- Dreyfuss v. Union Bank of Cal., 24 Cal.4th 400 (Cal. 2000) (anti-deficiency statute scope; foreclosure prerequisites)
- Hibernia Sav. & Loan Soc. v. Thornton, 109 Cal. 427 (Cal. 1895) (Hibernia Rule; prevents creditor from extinguishing security to bypass protections)
- Pacific Valley Bank v. Schwenke, 189 Cal.App.3d 134 (Cal. App. 1987) (creditor cannot divest security without debtor consent)
- Simon v. Superior Court, 4 Cal.App.4th 63 (Cal. App. 1992) (sold-out junior lienholder concept; foreclosure eliminates security)